UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

Commission File Number 0-15572

                            FIRST BANCORP                            

(Exact Name of Registrant as Specified in its Charter)

North Carolina	56-1421916
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
341 North Main Street, Troy, North Carolina	27371-0508
(Address of Principal Executive Offices)	(Zip Code)
(Registrant's telephone number, including area code)	(910)   576-6171

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      ý YES      o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý YES     o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

£ Large Accelerated Filer	S Accelerated Filer	£ Non-Accelerated Filer	£ Smaller Reporting Company
		(Do not check if a smaller
		reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o YES     ý NO

The number of shares of the registrant's Common Stock outstanding on April 30, 2012 was 16,949,941.

INDEX

FIRST BANCORP AND SUBSIDIARIES

	Page
Part I.  Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 2012 and March 31, 2011
(With Comparative Amounts at December 31, 2011)	4
Consolidated Statements of Income -
For the Periods Ended March 31, 2012 and 2011	5
Consolidated Statements of Comprehensive Income -
For the Periods Ended March 31, 2012 and 2011	6
Consolidated Statements of Shareholders’ Equity -
For the Periods Ended March 31, 2012 and 2011	7
Consolidated Statements of Cash Flows -
For the Periods Ended March 31, 2012 and 2011	8
Notes to Consolidated Financial Statements	9
Item 2 – Management’s Discussion and Analysis of Consolidated
Results of Operations and Financial Condition	38
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	61
Item 4 – Controls and Procedures	63
Part II.  Other Information
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 6 – Exhibits	64
Signatures	66

Page 2

FORWARD-LOOKING STATEMENTS

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 2011 Annual Report on Form 10-K.

Page 3

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets

($ in thousands-unaudited)	March 31, 2012			December 31, 2011(audited)			March 31, 2011
ASSETS
Cash and due from banks, noninterest-bearing	$	58,001			80,341			59,985
Due from banks, interest-bearing		234,137			135,218			182,445
Federal funds sold		1,203			608			14,590
Total cash and cash equivalents		293,341			216,167			257,020
Securities available for sale		159,182			182,626			192,382
Securities held to maturity (fair values of $61,226, $62,754, and $58,526)		57,066			57,988			57,433
Presold mortgages in process of settlement		7,003			6,090			2,696
Loans – non-covered		2,094,524			2,069,152			2,045,998
Loans – covered by FDIC loss share agreement		342,100			361,234			440,212
Total loans		2,436,624			2,430,386			2,486,210
Allowance for loan losses – non-covered		(46,455	)		(35,610	)		(35,773	)
Allowance for loan losses – covered		(6,372	)		(5,808	)		(7,002	)
Total allowance for loan losses		(52,827	)		(41,418	)		(42,775	)
Net loans		2,383,797			2,388,968			2,443,435
Premises and equipment		72,343			69,975			67,879
Accrued interest receivable		10,969			11,779			12,958
FDIC indemnification asset		113,405			121,677			140,937
Goodwill		65,835			65,835			65,835
Other intangible assets		3,675			3,897			4,575
Other real estate owned – non-covered		36,838			37,023			26,961
Other real estate owned – covered		79,535			85,272			95,868
Other assets		54,017			43,177			34,484
Total assets	$	3,337,006			3,290,474			3,402,463
LIABILITIES
Deposits:   Noninterest bearing checking accounts	$	371,293			335,833			332,168
Interest bearing checking accounts		468,691			423,452			349,677
Money market accounts		526,684			513,832			516,045
Savings accounts		157,619			146,481			161,869
Time deposits of $100,000 or more		738,839			753,233			806,735
Other time deposits		567,933			582,206			677,947
Total deposits		2,831,059			2,755,037			2,844,441
Securities sold under agreements to repurchase		—			17,105			72,951
Borrowings		133,894			133,925			108,833
Accrued interest payable		1,659			1,872			2,328
Other liabilities		31,963			37,385			24,520
Total liabilities		2,998,575			2,945,324			3,053,073
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share.  Authorized: 5,000,000 shares
Issued and outstanding:  63,500, 63,500, and 65,000 shares		63,500			63,500			65,000
Discount on preferred stock		—			—			(2,703	)
Common stock, no par value per share.  Authorized: 40,000,000 shares
Issued and outstanding:  16,937,641, 16,909,820 and 16,824,489 shares		105,068			104,841			104,581
Retained earnings		178,195			185,491			187,401
Accumulated other comprehensive income (loss)		(8,332	)		(8,682	)		(4,889	)
Total shareholders’ equity		338,431			345,150			349,390
Total liabilities and shareholders’ equity	$	3,337,006			3,290,474			3,402,463

See notes to consolidated financial statements.

Page 4

First Bancorp and Subsidiaries

Consolidated Statements of Income

($ in thousands, except share data-unaudited)	Three Months Ended March 31,
	2012			2011
INTEREST INCOME
Interest and fees on loans	$	35,042			36,807
Interest on investment securities:
Taxable interest income		1,258			1,432
Tax-exempt interest income		493			500
Other, principally overnight investments		139			90
Total interest income		36,932			38,829
INTEREST EXPENSE
Savings, checking and money market		849			1,230
Time deposits of $100,000 or more		2,175			2,604
Other time deposits		1,269			2,169
Securities sold under agreements to repurchase		4			50
Borrowings		544			462
Total interest expense		4,841			6,515
Net interest income		32,091			32,314
Provision for loan losses – non-covered		18,557			7,570
Provision for loan losses – covered		2,998			3,773
Total provision for loan losses		21,555			11,343
Net interest income after provision for loan losses		10,536			20,971
NONINTEREST INCOME
Service charges on deposit accounts		2,847			2,645
Other service charges, commissions and fees		2,192			1,915
Fees from presold mortgage loans		411			295
Commissions from sales of insurance and financial products		383			355
Gain from acquisition		—			10,196
Foreclosed property losses and write-downs – non-covered		(688	)		(1,353	)
Foreclosed property losses and write-downs – covered		(4,547	)		(4,934	)
FDIC indemnification asset income, net		4,105			5,040
Securities gains		452			14
Other gains		194			20
Total noninterest income		5,349			14,193
NONINTEREST EXPENSES
Salaries		10,174			9,711
Employee benefits		3,914			3,202
Total personnel expense		14,088			12,913
Net occupancy expense		1,681			1,672
Equipment related expenses		1,170			1,062
Intangibles amortization		223			224
Acquisition expenses		—			351
Other operating expenses		7,213			8,821
Total noninterest expenses		24,375			25,043
Income (loss) before income taxes		(8,490	)		10,121
Income taxes (benefit)		(3,308	)		3,746
Net income (loss)		(5,182	)		6,375
Preferred stock dividends		(760	)		(813	)
Accretion of preferred stock discount		—			(229	)
Net income (loss) available to common shareholders	$	(5,942	)		5,333
Earnings (loss) per common share:
Basic	$	(0.35	)		0.32
Diluted		(0.35	)		0.32
Dividends declared per common share	$	0.08			0.08
Weighted average common shares outstanding:
Basic		16,924,616			16,813,941
Diluted		16,924,650			16,841,787

See notes to consolidated financial statements.

Page 5

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

	Three Months Ended March 31,
($ in thousands-unaudited)	2012			2011
Net income (loss)	$	(5,182	)		6,375
Other comprehensive income (loss):
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period, pretax		717			190
Tax benefit		(280	)		(74	)
Reclassification to realized gains		(452	)		(14	)
Tax expense		176			5
Postretirement Plans:
Amortization of unrecognized net actuarial loss		301			140
Tax expense		(117	)		(56	)
Amortization of prior service cost and transition obligation		9			9
Tax expense		(4	)		(4	)
Other comprehensive income		350			196
Comprehensive income (loss)	$	(4,832	)		6,571

See notes to consolidated financial statements.

Page 6

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(In thousands, except per share - unaudited)	Preferred		Preferred Stock			Common Stock					Retained			Accumulated Other Comprehensive			Total Share- holders’
	Stock		Discount			Shares		Amount			Earnings			Income (Loss)			Equity
Balances, January 1, 2011	$	65,000		(2,932	)		16,801	$	104,207			183,413			(5,085	)		344,603
Net income												6,375						6,375
Common stock issued under stock option plans							2		31									31
Common stock issued into dividend reinvestment plan							14		210									210
Cash dividends declared ($0.08 per common share)												(1,345	)					(1,345	)
Preferred dividends												(813	)					(813	)
Accretion of preferred stock discount				229								(229	)					—
Stock-based compensation							7		133									133
Other comprehensive income															196			196
Balances, March 31, 2011	$	65,000		(2,703	)		16,824	$	104,581			187,401			(4,889	)		349,390
Balances, January 1, 2012	$	63,500		—			16,910	$	104,841			185,491			(8,682	)		345,150
Net income (loss)												(5,182	)					(5,182	)
Common stock issued into dividend reinvestment plan							18		209									209
Repurchases of common stock							—		(2	)								(2	)
Cash dividends declared ($0.08 per common share)												(1,354	)					(1,354	)
Preferred dividends												(760	)					(760	)
Stock-based compensation							10		20									20
Other comprehensive income															350			350
Balances, March 31, 2012	$	63,500		—			16,938	$	105,068			178,195			(8,332	)		338,431

See notes to consolidated financial statements.

Page 7

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

	Three Months Ended March 31,
($ in thousands-unaudited)	2012			2011
Cash Flows From Operating Activities
Net income (loss)	$	(5,182	)		6,375
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses		21,555			11,343
Net security premium amortization		456			412
Purchase accounting accretion and amortization, net		(2,525	)		(2,500	)
Gain from acquisition		—			(10,196	)
Foreclosed property losses and write-downs		5,235			6,287
Gain on securities available for sale		(452	)		(14	)
Other gains		(194	)		(20	)
Increase in net deferred loan costs		(60	)		(207	)
Depreciation of premises and equipment		1,133			1,092
Stock-based compensation expense		20			133
Amortization of intangible assets		223			224
Origination of presold mortgages in process of settlement		(19,422	)		(20,082	)
Proceeds from sales of presold mortgages in process of settlement		18,509			21,348
Decrease in accrued interest receivable		810			621
Increase in other assets		(15,846	)		(4,281	)
Increase (decrease) in accrued interest payable		(213	)		246
Decrease in other liabilities		(5,080	)		(5,280	)
Net cash provided (used) by operating activities		(1,033	)		5,501
Cash Flows From Investing Activities
Purchases of securities available for sale		(9,000	)		(21,817	)
Purchases of securities held to maturity		—			(3,232	)
Proceeds from sales of securities available for sale		9,641			2,518
Proceeds from maturities/issuer calls of securities available for sale		23,125			11,469
Proceeds from maturities/issuer calls of securities held to maturity		860			686
Net decrease (increase) in loans		(23,828	)		35,368
Proceeds from FDIC loss share agreements		13,247			31,214
Proceeds from sales of foreclosed real estate		10,653			6,772
Purchases of premises and equipment		(3,501	)		(1,214	)
Net cash received in acquisition		—			54,037
Net cash provided by investing activities		21,197			115,801
Cash Flows From Financing Activities
Net increase in deposits and repurchase agreements		58,950			17,713
Repayments of borrowings, net		—			(92,081	)
Cash dividends paid – common stock		(1,353	)		(1,344	)
Cash dividends paid – preferred stock		(794	)		(813	)
Proceeds from issuance of common stock		209			241
Repurchase of common stock		(2	)		—
Net cash provided (used) by financing activities		57,010			(76,284	)
Increase in cash and cash equivalents		77,174			45,018
Cash and cash equivalents, beginning of period		216,167			212,002
Cash and cash equivalents, end of period	$	293,341			257,020
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	5,054			6,269
Income taxes		5,275			8,200
Non-cash transactions:
Unrealized gain on securities available for sale, net of taxes		161			107
Foreclosed loans transferred to other real estate		9,966			19,441

See notes to consolidated financial statements.

Page 8

First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) For the Periods Ended March 31, 2012 and 2011

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2012 and 2011 and the consolidated results of operations and consolidated cash flows for the periods ended March 31, 2012 and 2011. All such adjustments were of a normal, recurring nature. Reference is made to the 2011 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended March 31, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

Note 2 – Accounting Policies

Note 1 to the 2011 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and discussion of recent accounting pronouncements. During the first quarter of 2012, there were no new standards or guidance issued by the regulatory authorities relevant to the Company.

Note 3 – Reclassifications

Certain amounts reported in the period ended March 31, 2011 have been reclassified to conform to the presentation for March 31, 2012. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.

Note 4 – Acquisition - Pending

On October 21, 2011, the Company entered into a Branch Purchase and Assumption Agreement (“The Agreement”) with Waccamaw Bankshares, Inc., and its subsidiary, Waccamaw Bank. The Agreement provides for First Bank to acquire eleven branches from Waccamaw Bank, which includes assuming all deposits, selected performing loans, and all premises and equipment. Deposits total approximately $180 million and loans total approximately $98 million.

The Agreement provides for the deposits to be purchased at a premium that varies by account type. The estimated blended premium is approximately 1.5% of total deposits.

The Agreement provides for loans to be purchased at par (the amount of principal outstanding and interest receivable) and for premises and equipment to be purchased at net book value. Approximately $31 million of the $98 million in loans being acquired are subject to a provision in the Agreement allowing First Bank to put the loans back to Waccamaw Bank at par value for any reason within 20 months following the closing date of the transaction. The Agreement is subject to regulatory approval and other customary conditions. No assurance can be provided that this Agreement will be approved.

Note 5 – Equity-Based Compensation Plans

At March 31, 2012, the Company had the following equity-based compensation plans: the First Bancorp 2007 Equity Plan, the First Bancorp 2004 Stock Option Plan, the First Bancorp 1994 Stock Option Plan, and one plan that was assumed from an acquired entity. The Company’s shareholders approved all equity-based compensation plans, except for those assumed from acquired companies. The First Bancorp 2007 Equity Plan became effective

Page 9

upon the approval of shareholders on May 2, 2007. As of March 31, 2012, the First Bancorp 2007 Equity Plan was the only plan that had shares available for future grants.

The First Bancorp 2007 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2007 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. As it relates to director equity grants, the Company grants common shares, valued at approximately $242,000 on the date of the grant, to each non-employee director in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions.

The Company granted long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012 with a two year minimum vesting period. The total compensation expense associated with the February 24, 2011 grant was $105,500 and the grant will fully vest on February 24, 2013. The Company recorded $12,400 in the first quarter of 2012 and will record $9,700 in each subsequent quarter of 2012. The total compensation expense associated with the February 23, 2012 grant was $89,700 and the grant will fully vest on February 23, 2014. The Company recorded $3,700 in the first quarter of 2012 and will record $11,200 in each subsequent quarter of 2012.

Under the terms of the Predecessor Plans and the First Bancorp 2007 Equity Plan, options can have a term of no longer than ten years, and all options granted thus far under these plans have had a term of ten years. The Company’s options provide for immediate vesting if there is a change in control (as defined in the plans).

At March 31, 2012, there were 476,624 options outstanding related to the three First Bancorp plans, with exercise prices ranging from $14.35 to $22.12. At March 31, 2012, there were 896,709 shares remaining available for grant under the First Bancorp 2007 Equity Plan. The Company also has a stock option plan as a result of a corporate acquisition. At March 31, 2012, there were 4,788 stock options outstanding in connection with the acquired plan, with option prices ranging from $10.66 to $15.22.

The Company issues new shares of common stock when options are exercised.

The Company measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the Company’s dividend yield at the time of the grant (subject to adjustment if the dividend yield on the grant date is not expected to approximate the dividend yield over the expected life of the option); the volatility factor is based on the historical volatility of the Company’s stock (subject to adjustment if future volatility is reasonably expected to differ from the past); and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

The Company’s equity grants for the three months ended March 31, 2012 were the issuance of 9,559 shares of long-term restricted stock to certain senior executives on February 23, 2012, at a fair market value of $10.96 per share, which was the closing price of the Company’s common stock on that date.

The Company’s equity grants for the three months ended March 31, 2011 were the issuance of 7,259 shares of long-term restricted stock to certain senior executives on February 24, 2011, at a fair market value of $14.54 per share, which was the closing price of the Company’s common stock on that date.

Page 10

The Company recorded total stock-based compensation expense of $20,000 and $133,000 for the three-month periods ended March 31, 2012 and 2011, respectively, which relates to the employee grants discussed above and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $8,000 and $48,000 of income tax benefits related to stock based compensation expense in the income statement for the three months ended March 31, 2012 and 2011, respectively.

As noted above, certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company has elected to recognize compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for the entire award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all options granted without performance conditions will become vested.

The following table presents information regarding the activity for the first three months of 2012 related to all of the Company’s stock options outstanding:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value
Balance at December 31, 2011		493,850		$	18.92
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(12,438	)		18.71
Outstanding at March 31, 2012		481,412		$	18.92		3.4	$	656
Exercisable at March 31, 2012		479,412		$	18.92		3.4	$	656

The Company did not have any stock option exercises during the three months ended March 31, 2012 and received $31,000 as a result of stock option exercises during the three months ended March 31, 2011. The Company recorded no tax benefits from the exercise of nonqualified stock options during the three months ended March 31, 2012 or 2011.

As discussed above, the Company granted 7,259 and 9,559 long-term restricted shares of common stock to certain senior executives on February 24, 2011 and February 23, 2012, respectively.

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The following table presents information regarding the activity during 2012 related to the Company’s outstanding restricted stock:

	Long-Term Restricted Stock
	Number of Units			Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2011		7,259		$	14.54
Granted during the period		9,559		$	10.96
Vested during the period		—			—
Forfeited or expired during the period		(2,474	)		12.55
Nonvested at March 31, 2012		14,344		$	12.50

Note 6 – Earnings Per Common Share

Basic earnings per common share were computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. Currently, the Company’s potentially dilutive common stock issuances relate to grants under the Company’s equity-based compensation plans, including stock options and restricted stock. The following is a reconciliation of the numerators and denominators used in computing basic and diluted earnings per common share:

	For the Three Months Ended March 31,
	2012								2011
($ in thousands except per share amounts)	Income (Numer- ator)			Shares (Denom- inator)		Per Share Amount			Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount
Basic EPS
Net income (loss) available to common shareholders	$	(5,942	)		16,924,616	$	(0.35	)	$	5,333		16,813,941	$	0.32
Effect of Dilutive Securities		—			34					—		27,846
Diluted EPS per common share	$	(5,942	)		16,924,650	$	(0.35	)	$	5,333		16,841,787	$	0.32

For the three months ended March 31, 2012 and 2011, there were 384,231 and 515,916 options, respectively, that were antidilutive because the exercise price exceeded the average market price for the period. Antidilutive options have been omitted from the calculation of diluted earnings per share for the respective periods.

Page 12

Note 7 – Securities

The book values and approximate fair values of investment securities at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31, 2012									December 31, 2011
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Securities available for sale:
Government-sponsored enterprise securities	$	23,507		23,591		104		(20	)		34,511		34,665		170		(13	)
Mortgage-backed securities		107,330		111,069		3,831		(92	)		120,032		124,105		4,164		(91	)
Corporate bonds		13,186		13,137		284		(333	)		13,189		12,488		279		(980	)
Equity securities		10,998		11,385		419		(32	)		10,998		11,368		409		(39	)
Total available for sale	$	155,021		159,182		4,638		(477	)		178,730		182,626		5,022		(1,126	)
Securities held to maturity:
State and local governments	$	57,066		61,226		4,162		(2	)		57,988		62,754		4,766		—
Total held to maturity	$	57,066		61,226		4,162		(2	)		57,988		62,754		4,766		—

Included in mortgage-backed securities at March 31, 2012 were collateralized mortgage obligations with an amortized cost of $805,000 and a fair value of $829,000. Included in mortgage-backed securities at December 31, 2011 were collateralized mortgage obligations with an amortized cost of $1,462,000 and a fair value of $1,515,000. All of the Company’s mortgage-backed securities, including collateralized mortgage obligations, were issued by government-sponsored corporations.

The Company owned Federal Home Loan Bank (FHLB) stock with a cost and fair value of $10,904,000 at both March 31, 2012 and December 31, 2011, which is included in equity securities above and serves as part of the collateral for the Company’s line of credit with the FHLB. The investment in this stock is a requirement for membership in the FHLB system.

The following table presents information regarding securities with unrealized losses at March 31, 2012:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	2,980		20		—		—		2,980		20
Mortgage-backed securities		13,628		91		3,300		1		16,928		92
Corporate bonds		2,020		18		2,978		315		4,998		333
Equity securities		—		—		28		32		28		32
State and local governments		510		2		—		—		510		2
Total temporarily impaired securities	$	19,138		131		6,306		348		25,444		479

Page 13

The following table presents information regarding securities with unrealized losses at December 31, 2011:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	8,984		16		—		—		8,984		16
Mortgage-backed securities		14,902		61		9,302		30		24,204		91
Corporate bonds		4,588		458		2,773		522		7,361		980
Equity securities		4		2		22		37		26		39
State and local governments		—		—		—		—		—		—
Total temporarily impaired securities	$	28,478		537		12,097		589		40,575		1,126

In the above tables, all of the non-equity securities that were in an unrealized loss position at March 31, 2012 and December 31, 2011 are bonds that the Company has determined are in a loss position due to interest rate factors, the overall economic downturn in the financial sector, and the broader economy in general. The Company has evaluated the collectability of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The Company has also concluded that each of the equity securities in an unrealized loss position at March 31, 2012 and December 31, 2011 was in such a position due to temporary fluctuations in the market prices of the securities. The Company’s policy is to record an impairment charge for any of these equity securities that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.

The aggregate carrying amount of cost-method investments was $10,904,000 at March 31, 2012 and December 31, 2011, respectively, which was the FHLB stock discussed above. The Company determined that none of its cost-method investments were impaired at either period end.

The book values and approximate fair values of investment securities at March 31, 2012, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value
Debt securities
Due within one year	$	3,007		3,073		675		686
Due after one year but within five years		23,497		23,602		2,549		2,768
Due after five years but within ten years		—		—		27,296		31,611
Due after ten years		10,189		10,053		26,546		26,161
Mortgage-backed securities		107,330		111,069		—		—
Total debt securities		144,023		147,797		57,066		61,226
Equity securities		10,998		11,385		—		—
Total securities	$	155,021		159,182		57,066		61,226

At March 31, 2012 investment securities with a book value of $27,626,000 were pledged as collateral for public deposits. At December 31, 2011, investment securities with a book value of $47,418,000 were pledged as collateral for public and private deposits and securities sold under agreements to repurchase.

There were $9,641,000 in sales of securities during the three months ended March 31, 2012, which resulted in a net gain of $446,000. There were $2,518,000 in sales during the three months ended March 31, 2011, which resulted in a net gain of $8,000. During the three months ended March 31, 2012 and 2011, the Company recorded a net gain of $6,000 and $11,000, respectively, related to the call of municipal securities. Also, during the three

Page 14

months ended March 31, 2011, the Company recorded a net loss of $5,000 related to write-downs of the Company’s equity portfolio.

Note 8 – Loans and Asset Quality Information

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection. (See the Company’s 2011 Annual Report on Form 10-K for more information regarding these transactions.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	March 31, 2012					December 31, 2011					March 31, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	159,496		7	%		162,099		7	%		162,868		7	%
Real estate – construction, land development & other land loans		355,709		15	%		363,079		15	%		434,566		18	%
Real estate – mortgage – residential (1-4 family) first mortgages		812,878		33	%		805,542		33	%		804,278		32	%
Real estate – mortgage – home equity loans / lines of credit		255,955		10	%		256,509		11	%		267,515		11	%
Real estate – mortgage – commercial and other		775,610		32	%		762,895		31	%		733,087		29	%
Installment loans to individuals		75,636		3	%		78,982		3	%		82,716		3	%
Subtotal		2,435,284		100	%		2,429,106		100	%		2,485,030		100	%
Unamortized net deferred loan costs		1,340					1,280					1,180
Total loans	$	2,436,624					2,430,386					2,486,210

As of March 31, 2012, December 31, 2011 and March 31, 2011, net loans include unamortized premiums of $833,000, $949,000, and $1,298,000, respectively, related to acquired loans.

Page 15

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	March 31, 2012					December 31, 2011					March 31, 2011
	Amount		Percentage			Amount		Percentage			Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	151,148		7	%		152,627		8	%		146,838		7	%
Real estate – construction, land development & other land loans		287,833		14	%		290,983		14	%		330,389		16	%
Real estate – mortgage – residential (1-4 family) first mortgages		659,946		31	%		646,616		31	%		622,108		30	%
Real estate – mortgage – home equity loans / lines of credit		233,915		11	%		233,171		11	%		241,443		12	%
Real estate – mortgage – commercial and other		685,734		33	%		666,882		32	%		624,699		31	%
Installment loans to individuals		74,608		4	%		77,593		4	%		79,341		4	%
Subtotal		2,093,184		100	%		2,067,872		100	%		2,044,818		100	%
Unamortized net deferred loan costs		1,340					1,280					1,180
Total non-covered loans	$	2,094,524					2,069,152					2,045,998

The carrying amount of the covered loans at March 31, 2012 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		150		8,279		10,513		8,348		10,663
Real estate – construction, land development & other land loans		1,881		3,985		65,995		114,241		67,876		118,226
Real estate – mortgage – residential (1-4 family) first mortgages		841		1,926		152,091		182,035		152,932		183,961
Real estate – mortgage – home equity loans / lines of credit		16		311		22,024		27,724		22,040		28,035
Real estate – mortgage – commercial and other		2,392		4,167		87,484		118,559		89,876		122,726
Installment loans to individuals		3		5		1,025		1,121		1,028		1,126
Total	$	5,202		10,544		336,898		454,193		342,100		464,737

Page 16

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		319		9,403		11,736		9,472		12,055
Real estate – construction, land development & other land loans		3,865		8,505		68,231		115,489		72,096		123,994
Real estate – mortgage – residential (1-4 family) first mortgages		1,214		2,639		157,712		189,436		158,926		192,075
Real estate – mortgage – home equity loans / lines of credit		127		577		23,211		29,249		23,338		29,826
Real estate – mortgage – commercial and other		2,585		4,986		93,428		125,450		96,013		130,436
Installment loans to individuals		4		6		1,385		1,583		1,389		1,589
Total	$	7,864		17,032		353,370		472,943		361,234		489,975

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2010. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2010		366,521
Additions due to acquisition of The Bank of Asheville (at fair value)		84,623
Principal repayments		(40,576	)
Transfers to foreclosed real estate		(53,999	)
Loan charge-offs		(14,797	)
Accretion of loan discount		11,598
Carrying amount of nonimpaired covered loans at December 31, 2011	$	353,370
Principal repayments		(12,082	)
Transfers to foreclosed real estate		(4,535	)
Loan charge-offs		(2,433	)
Accretion of loan discount		2,578
Carrying amount of nonimpaired covered loans at March 31, 2012	$	336,898

As reflected in the table above, the Company accreted $2,578,000 of the loan discount on purchased nonimpaired loans into interest income during the first quarter of 2012. As of March 31, 2012, there was remaining loan discount of $86,093,000 related to purchased nonimpaired loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income.

The following table presents information regarding all purchased impaired loans since December 31, 2010, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

Page 17

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2010	$	8,080			2,329			5,751
Additions due to acquisition of The Bank of Asheville		38,452			20,807			17,645
Change due to payments received		(1,620	)		(327	)		(1,293	)
Transfer to foreclosed real estate		(19,881	)		(9,308	)		(10,573	)
Change due to loan charge-off		(7,522	)		(4,193	)		(3,329	)
Other		807			224			583
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(238	)		(96	)		(142	)
Transfer to foreclosed real estate		(7,334	)		(3,477	)		(3,857	)
Change due to loan charge-off		(109	)		(109	)		—
Other		(1,391	)		(1,808	)		417
Balance at March 31, 2012	$	9,244			4,042			5,202

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first quarter of 2012 and 2011, the Company received no payments that exceeded the initial carrying amount of the purchased impaired loans.

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	March 31, 2012		December 31, 2011		March 31, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,665		73,566		69,250
Restructured loans - accruing		10,619		11,720		19,843
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		80,284		85,286		89,093
Other real estate		36,838		37,023		26,961
Total non-covered nonperforming assets	$	117,122		122,309		116,054
Covered nonperforming assets
Nonaccrual loans (1)	$	42,369		41,472		56,862
Restructured loans - accruing		13,158		14,218		16,238
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		55,527		55,690		73,100
Other real estate		79,535		85,272		95,868
Total covered nonperforming assets	$	135,062		140,962		168,968
Total nonperforming assets	$	252,184		263,271		285,022

(1) At March 31, 2012, December 31, 2011, and March 31, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $68.3 million, $69.0 million, and $106.5 million, respectively.

Page 18

The following table presents information related to the Company’s impaired loans.

($ in thousands)	As of /for the three months ended March 31, 2012		As of /for the year ended December 31, 2011		As of /for the three months ended March 31, 2011
Impaired loans at period end
Non-covered	$	80,284		85,286		89,093
Covered		55,527		55,690		73,100
Total impaired loans at period end	$	135,811		140,976		162,193
Average amount of impaired loans for period
Non-covered	$	82,788		89,023		92,548
Covered		55,609		63,289		72,962
Average amount of impaired loans for period – total	$	138,397		152,312		165,510
Allowance for loan losses related to impaired loans at period end
Non-covered	$	11,662		5,804		6,289
Covered		5,308		5,106		6,206
Allowance for loan losses related to impaired loans - total	$	16,970		10,910		12,495
Amount of impaired loans with no related allowance at period end
Non-covered	$	16,717		35,721		40,169
Covered		36,756		43,702		57,785
Total impaired loans with no related allowance at period end	$	53,473		79,423		97,954

All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table on previous page for balances).

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company’s nonaccrual loans as of March 31, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	30		—		30
Commercial – secured		1,751		24		1,775
Secured by inventory and accounts receivable		822		—		822
Real estate – construction, land development & other land loans		20,469		19,002		39,471
Real estate – residential, farmland and multi-family		25,819		10,898		36,717
Real estate – home equity lines of credit		2,909		938		3,847
Real estate – commercial		15,017		11,497		26,514
Consumer		2,848		10		2,858
Total	$	69,665		42,369		112,034

Page 19

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		—		452
Commercial - secured		2,190		358		2,548
Secured by inventory and accounts receivable		588		102		690
Real estate – construction, land development & other land loans		22,772		21,204		43,976
Real estate – residential, farmland and multi-family		25,430		11,050		36,480
Real estate – home equity lines of credit		3,161		1,068		4,229
Real estate - commercial		16,203		7,459		23,662
Consumer		2,770		231		3,001
Total	$	73,566		41,472		115,038

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	178		82		30		37,459		37,749
Commercial - secured		1,222		130		1,751		107,088		110,191
Secured by inventory and accounts receivable		33		—		822		21,415		22,270
Real estate – construction, land development & other land loans		923		219		20,469		222,150		243,761
Real estate – residential, farmland, and multi-family		7,886		2,439		25,819		773,061		809,205
Real estate – home equity lines of credit		314		210		2,909		204,897		208,330
Real estate - commercial		948		545		15,017		588,775		605,285
Consumer		433		181		2,848		52,931		56,393
Total non-covered	$	11,937		3,806		69,665		2,007,776		2,093,184
Unamortized net deferred loan costs										1,340
Total non-covered loans									$	2,094,524
Covered loans	$	7,014		2,274		42,369		290,443		342,100
Total loans	$	18,951		6,080		112,034		2,298,219		2,436,624

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at March 31, 2012.

Page 20

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	67		591		452		37,668		38,778
Commercial - secured		672		207		2,190		108,682		111,751
Secured by inventory and accounts receivable		247		—		588		20,993		21,828
Real estate – construction, land development & other land loans		1,250		1,411		22,772		221,372		246,805
Real estate – residential, farmland, and multi-family		9,751		4,259		25,430		756,215		795,655
Real estate – home equity lines of credit		1,126		237		3,161		202,912		207,436
Real estate - commercial		2,620		1,006		16,203		567,354		587,183
Consumer		657		286		2,770		54,723		58,436
Total non-covered	$	16,390		7,997		73,566		1,969,919		2,067,872
Unamortized net deferred loan costs										1,280
Total non-covered loans									$	2,069,152
Covered loans	$	6,511		3,388		41,472		309,863		361,234
Total loans	$	22,901		11,385		115,038		2,279,782		2,430,386

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2011.

Page 21

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(1,318	)		(2,678	)		(2,091	)		(451	)		(1,365	)		(352	)		—		(8,255	)
Recoveries		16			188			194			34			41			70			—		543
Provisions		2,476			7,603			3,734			859			3,647			236			2		18,557
Ending balance	$	4,954			16,419			15,369			2,132			5,737			1,826			18		46,455
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	869			3,473			1,926			406			1,885			—			—		8,559
Collectively evaluated for impairment	$	4,085			12,946			13,443			1,726			3,852			1,826			18		37,896
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable:
Ending balance – total	$	170,210			243,761			809,205			208,330			605,285			56,393			—		2,093,184
Ending balances: Loans
Individually evaluated for impairment	$	1,011			24,746			14,366			1,331			25,263			—			—		66,717
Collectively evaluated for impairment	$	169,199			219,015			794,839			206,999			580,022			56,393			—		2,026,467
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Page 22

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(2,703	)		(16,240	)		(9,045	)		(1,147	)		(3,355	)		(845	)		(524	)		(33,859	)
Recoveries		389			1,142			719			107			37			182			93			2,669
Provisions		1,363			13,884			10,575			(904	)		2,760			574			273			28,525
Ending balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16			35,610
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	60			607			150			—			200			—			—			1,017
Collectively evaluated for impairment	$	3,720			10,699			13,382			1,690			3,214			1,872			16			34,593
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable:
Ending balance – total	$	172,357			246,805			795,655			207,436			587,183			58,436			—			2,067,872
Ending balances: Loans
Individually evaluated for impairment	$	2,526			34,750			11,880			527			30,846			12			—			80,541
Collectively evaluated for impairment	$	169,831			212,055			783,775			206,909			556,337			58,424			—			1,987,331
Loans acquired with deteriorated credit quality	$	—			920			—			—			—			—			—			920

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2011.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
Beginning balance	$	4,731			12,520			11,283			3,634			3,972			1,961			174			38,275
Charge-offs		(1,156	)		(3,993	)		(3,348	)		(623	)		(1,067	)		(203	)		(115	)		(10,505	)
Recoveries		8			32			232			6			28			83			44			433
Provisions		559			1,644			4,296			342			426			382			(79	)		7,570
Ending balance	$	4,142			10,203			12,463			3,359			3,359			2,223			24			35,773
Ending balances:  Allowance for loan losses
Individually evaluated for impairment	$	200			1,688			1,065			—			250			—			—			3,203
Collectively evaluated for impairment	$	3,942			8,515			11,398			3,359			3,109			2,223			24			32,570
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable:
Ending balance – total	$	165,250			290,468			762,235			212,084			554,360			60,421			—			2,044,818
Ending balances: Loans
Individually evaluated for impairment	$	2,212			48,484			11,057			531			32,899			18			—			95,201
Collectively evaluated for impairment	$	163,038			241,984			751,178			211,553			521,461			60,403			—			1,949,617
Loans acquired with deteriorated credit quality	$	—			1,173			—			—			—			—			—			1,173

Page 23

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended March, 31 2012
Beginning balance	$	5,808
Charge-offs		(2,434	)
Recoveries		—
Provisions		2,998
Ending balance	$	6,372
Ending balances as of March 31, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	6,274
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		98
Loans receivable as of March 31, 2012:
Ending balance – total	$	342,100
Ending balances as of March 31, 2012: Loans
Individually evaluated for impairment	$	49,244
Collectively evaluated for impairment		292,856
Loans acquired with deteriorated credit quality		5,202

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

($ in thousands)	Covered Loans
As of and for the year ended December 31, 2011
Beginning balance	$	11,155
Charge-offs		(18,123	)
Recoveries		—
Provisions		12,776
Ending balance	$	5,808
Ending balances as of December 31, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	5,481
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		327
Loans receivable as of December 31, 2011:
Ending balance – total	$	361,234
Ending balances as of December 31, 2011: Loans
Individually evaluated for impairment	$	44,723
Collectively evaluated for impairment		316,511
Loans acquired with deteriorated credit quality		7,864

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2011.

($ in thousands)	Covered Loans
As of and for the three months ended March 31, 2011
Beginning balance	$	11,155
Charge-offs		(7,926	)
Recoveries		—
Provisions		3,773
Ending balance	$	7,002
Ending balances as of March 31, 2011:  Allowance for loan losses
Individually evaluated for impairment	$	7,002
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		—
Loans receivable as of March 31, 2011:
Ending balance – total	$	440,212
Ending balances as of March 31, 2011: Loans
Individually evaluated for impairment	$	50,180
Collectively evaluated for impairment		390,032
Loans acquired with deteriorated credit quality		20,438

Page 24

The following table presents the Company’s impaired loans as of March 31, 2012.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		69		225		—		182
Secured by inventory and accounts receivable		—		—		—		14
Real estate – construction, land development & other land loans		4,921		7,672		—		10,013
Real estate – residential, farmland, and multi-family		1,832		2,057		—		2,637
Real estate – home equity lines of credit		—		—		—		23
Real estate – commercial		9,895		11,033		—		13,345
Consumer		—		—		—		6
Total non-covered impaired loans with no allowance	$	16,717		20,987		—		26,220
Total covered impaired loans with no allowance	$	36,756		67,281		—		40,229
Total impaired loans with no allowance recorded	$	53,473		88,268		—		66,449
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	30		30		7		241
Commercial - secured		1,683		1,835		279		1,789
Secured by inventory and accounts receivable		822		1,308		246		692
Real estate – construction, land development & other land loans		17,564		21,251		5,692		13,963
Real estate – residential, farmland, and multi-family		26,438		29,032		3,484		25,449
Real estate – home equity lines of credit		2,909		3,186		111		3,012
Real estate – commercial		11,273		13,805		1,350		8,619
Consumer		2,848		2,881		493		2,803
Total non-covered impaired loans with allowance	$	63,567		73,328		11,662		56,568
Total covered impaired loans with allowance	$	18,771		24,362		5,308		15,380
Total impaired loans with an allowance recorded	$	82,338		97,690		16,970		71,948

Interest income recorded on non-covered and covered impaired loans during the three months ended March 31, 2012 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

Page 25

The following table presents the Company’s impaired loans as of December 31, 2011.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		295		478		—		504
Secured by inventory and accounts receivable		27		493		—		124
Real estate – construction, land development & other land loans		15,105		20,941		—		17,876
Real estate – residential, farmland, and multi-family		3,442		4,741		—		5,278
Real estate – home equity lines of credit		46		300		—		79
Real estate – commercial		16,794		18,817		—		13,359
Consumer		12		39		—		15
Total non-covered impaired loans with no allowance	$	35,721		45,809		—		37,235
Total covered impaired loans with no allowance	$	43,702		78,578		—		49,030
Total impaired loans with no allowance recorded	$	79,423		124,387		—		86,265
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	452		454		59		226
Commercial - secured		1,895		1,899		295		1,427
Secured by inventory and accounts receivable		561		571		156		391
Real estate – construction, land development & other land loans		10,360		12,606		2,244		15,782
Real estate – residential, farmland, and multi-family		24,460		26,153		2,169		22,487
Real estate – home equity lines of credit		3,115		3,141		117		2,544
Real estate – commercial		5,965		6,421		283		6,602
Consumer		2,757		2,759		481		2,329
Total non-covered impaired loans with allowance	$	49,565		54,004		5,804		51,788
Total covered impaired loans with allowance	$	11,988		15,670		5,106		14,259
Total impaired loans with an allowance recorded	$	61,553		69,674		10,910		66,047

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2011 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

Page 26

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

	Numerical Risk Grade	Description
Pass:
	1	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

Page 27

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	12,358		24,482		12		351		516		30		37,749
Commercial - secured		32,963		68,885		1,926		2,180		2,486		1,751		110,191
Secured by inventory and accounts receivable		2,988		17,409		273		741		37		822		22,270
Real estate – construction, land development & other land loans		36,024		158,110		5,601		9,972		13,585		20,469		243,761
Real estate – residential, farmland, and multi-family		257,460		471,300		9,090		15,266		30,270		25,819		809,205
Real estate – home equity lines of credit		131,859		67,707		2,401		1,734		1,720		2,909		208,330
Real estate - commercial		139,227		396,810		26,638		12,939		14,654		15,017		605,285
Consumer		29,318		23,111		69		380		667		2,848		56,393
Total	$	642,197		1,227,814		46,010		43,563		63,935		69,665		2,093,184
Unamortized net deferred loan costs														1,340
Total non-covered  loans													$	2,094,524
Total covered loans	$	58,543		146,588		—		9,216		85,384		42,369		342,100
Total loans	$	700,740		1,374,402		46,010		52,779		149,319		112,034		2,436,624

At March 31, 2012, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At March 31, 2012, there were no covered loans that were graded “8” with an accruing status.

Page 28

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	13,516		23,735		13		217		845		452		38,778
Commercial - secured		36,587		66,105		1,912		2,196		2,761		2,190		111,751
Secured by inventory and accounts receivable		3,756		16,197		282		756		249		588		21,828
Real estate – construction, land development & other land loans		37,596		156,651		6,490		9,903		13,393		22,772		246,805
Real estate – residential, farmland, and multi-family		257,163		456,188		10,248		17,687		28,939		25,430		795,655
Real estate – home equity lines of credit		130,913		67,606		2,422		1,868		1,466		3,161		207,436
Real estate - commercial		140,577		372,614		30,722		11,502		15,565		16,203		587,183
Consumer		30,693		23,550		67		368		988		2,770		58,436
Total	$	650,801		1,182,646		52,156		44,497		64,206		73,566		2,067,872
Unamortized net deferred loan costs														1,280
Total non-covered  loans													$	2,069,152
Total covered loans	$	62,052		161,508		—		8,033		88,169		41,472		361,234
Total loans	$	712,853		1,344,154		52,156		52,530		152,375		115,038		2,430,386

At December 31, 2011, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At December 31, 2011, there were no covered loans that were graded “8” with an accruing status.

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

The vast majority of the Company’s troubled debt restructurings modified during the period ended March 31, 2012 related to interest rate reductions combined with restructured amortization schedules. The Company does not grant principal forgiveness.

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

Page 29

The following table presents information related to loans modified in a troubled debt restructuring during the three-months ended March 31, 2012.

($ in thousands)	For the three months ended March 31, 2012
	Number of Contracts		Restructured Balances
Non-covered TDRs – Accruing		—	$	—
Non-covered TDRs - Nonaccrual		—		—
Total non-covered TDRs arising during period		—	$	—
Total covered TDRs arising during period– Accruing		3	$	1,914
Total covered TDRs arising during period – Nonaccrual		—		—
Total TDRs arising during period		3	$	1,914

Accruing restructured loans that defaulted during the three months ended March 31, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

($ in thousands)	For the three months ended March 31, 2012
	Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		2	$	664
Total non-covered TDRs that subsequently defaulted		2	$	664
Total accruing covered TDRs that subsequently defaulted		11	$	2,711
Total accruing TDRs that subsequently defaulted		13	$	3,375

Note 9 – Deferred Loan Costs

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,340,000, $1,280,000, and $1,180,000 at March 31, 2012, December 31, 2011, and March 31, 2011, respectively.

Page 30

Note 10 – FDIC Indemnification Asset

The FDIC indemnification asset is the estimated amount that the Company will receive from the FDIC under loss share agreements associated with two FDIC-assisted failed bank acquisitions. See page 38 of the Company’s 2011 Annual Report on Form 10-K for a detailed explanation of this asset.

The FDIC indemnification asset was comprised of the following components as of the dates shown:

($ in thousands)	March 31, 2012		December 31, 2011		March 31, 2011
Receivable related to claims submitted, not yet received	$	8,828		13,377		11,951
Receivable related to estimated future claims on loans		85,859		90,275		117,614
Receivable related to estimated future claims on other real estate owned		18,718		18,025		11,372
FDIC indemnification asset	$	113,405		121,677		140,937

The following presents a rollforward of the FDIC indemnification asset since December 31, 2011.

($ in thousands)
Balance at December 31, 2011	$	121,677
Increase related to unfavorable changes in loss estimates		6,151
Increase related to reimbursable expenses		1,402
Cash received		(13,247	)
Accretion of loan discount		(2,578	)
Other		—
Balance at March 31, 2012	$	113,405

Note 11 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of March 31, 2012, December 31, 2011, and March 31, 2011 and the carrying amount of unamortized intangible assets as of those same dates.

	March 31, 2012				December 31, 2011				March 31, 2011
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Customer lists	$	678		372		678		357		678		313
Core deposit premiums		7,867		4,499		7,867		4,291		7,867		3,656
Total	$	8,545		4,871		8,545		4,648		8,545		3,969
Unamortizable intangible assets:
Goodwill	$	65,835				65,835				65,835

Amortization expense totaled $223,000 and $224,000 for the three months ended March 31, 2012 and 2011, respectively.

Page 31

The following table presents the estimated amortization expense for the last three quarters of calendar year 2012 and for each of the four calendar years ending December 31, 2016 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

($ in thousands)		Estimated Amortization Expense
	April 1 to December 31, 2012	$	669
	2013		781
	2014		678
	2015		622
	2016		555
	Thereafter		369
	Total	$	3,674

Note 12 – Pension Plans

The Company sponsors two defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which is generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”), which is for the benefit of certain senior management executives of the Company.

The Company recorded pension expense totaling $1,039,000 and $832,000 for the three months ended March 31, 2012 and 2011, respectively, related to the Pension Plan and the SERP. The following table contains the components of the pension expense.

	For the Three Months Ended March 31,
($ in thousands)	2012			2011			2012		2011		2012 Total			2011 Total
	Pension Plan			Pension Plan			SERP		SERP		Both Plans			Both Plans
Service cost – benefits earned during the period	$	604			478			94		115		698			593
Interest cost		436			432			87		102		523			534
Expected return on plan assets		(492	)		(444	)		─		─		(492	)		(444	)
Amortization of transition obligation		1			1			─		─		1			1
Amortization of net (gain)/loss		267			114			34		26		301			140
Amortization of prior service cost		3			3			5		5		8			8
Net periodic pension cost	$	819			584			220		248		1,039			832

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to provide the Company with the maximum deduction for income tax purposes. The contributions are invested to provide for benefits under the Pension Plan. The Company expects that it will contribute $2,500,000 to the Pension Plan in 2012.

The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company.

Page 32

Note 13 – Comprehensive Income

Comprehensive income is defined as the change in equity during a period for non-owner transactions and is divided into net income and other comprehensive income. Other comprehensive income includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards. The components of accumulated other comprehensive income (loss) for the Company are as follows:

($ in thousands)	March 31, 2012			December 31, 2011			March 31, 2011
Unrealized gain (loss) on securities available for sale	$	4,161			3,896			2,654
Deferred tax asset (liability)		(1,624	)		(1,520	)		(1,035	)
Net unrealized gain (loss) on securities available for sale		2,537			2,376			1,619
Additional pension liability		(17,968	)		(18,278	)		(10,757	)
Deferred tax asset		7,099			7,220			4,249
Net additional pension liability		(10,869	)		(11,058	)		(6,508	)
Total accumulated other comprehensive income (loss)	$	(8,332	)		(8,682	)		(4,889	)

Note 14 – Fair Value

Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Page 33

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2012.

($ in thousands)
Description of Financial Instruments	Fair Value at March 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	23,591		—		23,591		—
Mortgage-backed securities		111,069		—		111,069		—
Corporate bonds		13,137		—		13,137		—
Equity securities		11,385		404		10,981		—
Total available for sale securities	$	159,182		404		158,778		—
Nonrecurring
Impaired loans – covered	$	55,527		—		—		55,527
Impaired loans – non-covered		80,284		—		—		80,284
Other real estate – covered		79,535		—		79,535		—
Other real estate – non-covered		36,838		—		36,838		—

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2011.

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	34,665		—		34,665		—
Mortgage-backed securities		124,105		—		124,105		—
Corporate bonds		12,488		—		12,488		—
Equity securities		11,368		398		10,969		—
Total available for sale securities	$	182,626		398		182,227		—
Nonrecurring
Impaired loans – covered	$	55,690		—		55,690		—
Impaired loans – non-covered		85,286		—		85,286		—
Other real estate – covered		85,272		—		85,272		—
Other real estate – non-covered		37,023		—		37,023		—

The following is a description of the valuation methodologies used for instruments measured at fair value.

Securities — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. Level 1 securities for the Company include certain equity securities. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored entity securities, and corporate bonds. In

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cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Impaired loans —Fair values for impaired loans in the above table are collateral dependent and are estimated based on underlying collateral values, as determined by third-party appraisers, which are then adjusted for the cost related to liquidation of the collateral.

Other real estate – Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three months ended March 31, 2012 or 2011.

For the three months ended March 31, 2012 and 2011, the increase in the fair value of securities available for sale was $265,000 and $176,000, respectively, which is included in other comprehensive income (tax expense of $104,000 and $69,000, respectively). Fair value measurement methods at March 31, 2012 and 2011 are consistent with those used in prior reporting periods.

The carrying amounts and estimated fair values of financial instruments at March 31, 2012 and December 31, 2011 are as follows:

		March 31, 2012				December 31, 2011
($ in thousands)	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Cash and due from banks, noninterest-bearing	Level 1	$	58,001		58,001		80,341		80,341
Due from banks, interest-bearing	Level 1		234,137		234,137		135,218		135,218
Federal funds sold	Level 1		1,203		1,203		608		608
Securities available for sale	Level 2		159,182		159,182		182,626		182,626
Securities held to maturity	Level 2		57,066		61,226		57,988		62,754
Presold mortgages in process of settlement	Level 1		7,003		7,003		6,090		6,090
Loans – non-covered, net of allowance	Level 3		2,048,069		1,996,128		2,033,542		1,987,979
Loans – covered, net of allowance	Level 3		335,728		335,728		355,426		355,426
FDIC indemnification asset	Level 3		113,405		112,518		121,677		121,004
Accrued interest receivable	Level 1		10,969		10,969		11,779		11,779
Deposits	Level 2		2,831,059		2,835,780		2,755,037		2,759,504
Securities sold under agreements to repurchase	Level 2		—		—		17,105		17,105
Borrowings	Level 2		133,894		107,148		133,925		106,333
Accrued interest payable	Level 2		1,659		1,659		1,872		1,872

Fair value methods and assumptions are set forth below for the Company’s financial instruments.

Cash and Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable - The carrying amounts approximate their fair value because of the short maturity of these financial instruments. (Level 1)

Available for Sale and Held to Maturity Securities - Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing. (Level 2)

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Loans – For non-impaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. (Level 3)

As discussed above, fair values for impaired loans are estimated based on estimated proceeds expected upon liquidation of the collateral. (Level 3)

FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt. (Level 3)

Deposits and Securities Sold Under Agreements to Repurchase - The fair value of securities sold under agreements to repurchase and deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, checking, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. (Level 2)

Borrowings - The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar remaining maturities. (Level 2)

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as foreclosed properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Note 15 – Participation in the Small Business Lending Fund

On September 1, 2011, the Company completed the sale of $63.5 million of Series B preferred stock to the Secretary of the Treasury under the Small Business Lending Fund (SBLF). The fund was established under the Small Business Jobs Act of 2010 that was created to encourage lending to small businesses by providing capital to qualified community banks with assets less than $10 billion.

Under the terms of the stock purchase agreement, the Treasury received 63,500 shares of non-cumulative perpetual preferred stock with a liquidation value of $1,000 per share, in exchange for $63.5 million.

The Series B preferred stock qualifies as Tier 1 capital. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the Series B preferred stock is

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outstanding, based upon changes in the level of “Qualified Small Business Lending” or “QBSL”. For the first nine quarters after issuance, the dividend rate can range from one percent (1%) to five percent (5%) per annum based upon the increase in QBSL as compared to the baseline. For quarters subsequent to the issuance in 2011, the Company has paid a dividend rate ranging from 4.8% to 5.0%. Based upon an increase in the level of QBSL over the baseline level calculated under the terms of the related purchase agreement, the dividend rate for the next dividend period (which will end on June 30, 2012) is expected to be 4.8%, subject to confirmation by Treasury. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%) based upon the level of QBSL compared to the baseline. After four and one half years from the issuance, the dividend rate will increase to nine percent (9%). Subject to regulatory approval, the Company is generally permitted to redeem the Series B preferred shares at par plus unpaid dividends.

There was no discount recorded related to the SBLF preferred stock (because no warrants were issued in connection with this preferred stock issuance), and therefore there will be no future amounts recorded for preferred stock discount accretion.

For the first three months of 2012, the Company accrued approximately $760,000 in preferred dividend payments. This amount is deducted from net income in computing “Net income available to common shareholders.”

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Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition

Critical Accounting Policies

The accounting principles we follow and our methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices followed by the banking industry. Certain of these principles involve a significant amount of judgment and may involve the use of estimates based on our best assumptions at the time of the estimation. The allowance for loan losses, intangible assets, and the fair value and discount accretion of loans acquired in FDIC-assisted transactions

are three policies we have identified as being more sensitive in terms of judgments and estimates, taking into account their overall potential impact to our consolidated financial statements.

Allowance for Loan Losses

Due to the estimation process and the potential materiality of the amounts involved, we have identified the accounting for the allowance for loan losses and the related provision for loan losses as an accounting policy critical to our consolidated financial statements. The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.

Our determination of the adequacy of the allowance is based primarily on a mathematical model that estimates the appropriate allowance for loan losses. This model has two components. The first component involves a review, and an estimation of losses, on loans or loan relationships that are significant in size and that are impaired (“impaired loans”). A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by either 1) an estimate of the cash flows that we expect to receive from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan, the fair value of the collateral.

The second component of the allowance model is an estimate of losses for smaller balance impaired loans and all loans not considered to be impaired loans (“general reserve loans”). General reserve loans having normal credit risk are segregated by loan type, and estimated loss percentages are assigned to each loan type, based on the historical losses, current economic conditions, and operational conditions specific to each loan type. For loans that we have risk graded as having more than “standard” risk, loss percentages are based on a multiple of the estimated loss rate for loans of a similar loan type with normal risk. The multiples assigned vary by type of loan, depending on risk, and we have consulted with an external credit review firm in assigning those multiples.

The reserve estimated for impaired loans is then added to the reserve estimated for general reserve loans. This becomes our “allocated allowance.” In addition to the allocated allowance derived from the model, we also evaluate other data such as the ratio of the allowance for loan losses to total loans, net loan growth information, nonperforming asset levels and trends in such data. Based on this additional analysis, we may determine that an additional amount of allowance for loan losses is necessary to reserve for probable losses. This additional amount, if any, is our “unallocated allowance.” The sum of the allocated allowance and the unallocated allowance is compared to the actual allowance for loan losses recorded on our books and any adjustment necessary for the recorded allowance to equal the computed allowance is recorded as a provision for loan losses. The provision for loan losses is a direct charge to earnings in the period recorded.

Loans covered under loss share agreements are recorded at fair value at acquisition date. Therefore, amounts deemed uncollectible at acquisition date become a part of the fair value calculation and are excluded from the allowance for loan losses. Subsequent decreases in the amount

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expected to be collected result in a provision for loan losses with a corresponding increase in the allowance for loan losses. Subsequent increases in the amount expected to be collected are accreted into income over the life of the loan. Proportional adjustments are also recorded to the FDIC indemnification asset.

Although we use the best information available to make evaluations, future material adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

For further discussion, see “Nonperforming Assets” and “Summary of Loan Loss Experience” below.

Intangible Assets

Due to the estimation process and the potential materiality of the amounts involved, we have also identified the accounting for intangible assets as an accounting policy critical to our consolidated financial statements.

When we complete an acquisition transaction, the excess of the purchase price over the amount by which the fair market value of assets acquired exceeds the fair market value of liabilities assumed represents an intangible asset. We must then determine the identifiable portions of the intangible asset, with any remaining amount classified as goodwill. Identifiable intangible assets associated with these acquisitions are generally amortized over the estimated life of the related asset, whereas goodwill is tested annually for impairment, but not systematically amortized. Assuming no goodwill impairment, it is beneficial to our future earnings to have a lower amount assigned to identifiable intangible assets and higher amount of goodwill as opposed to having a higher amount considered to be identifiable intangible assets and a lower amount classified as goodwill.

The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangible, whereas when we acquire an insurance agency, the primary identifiable intangible asset is the value of the acquired customer list. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. We typically engage a third party consultant to assist in each analysis. For the whole bank and bank branch transactions recorded to date, the core deposit intangibles have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. For insurance agency acquisitions, the identifiable intangible assets related to the customer lists were determined to have a life of ten to fifteen years, with amortization occurring on a straight-line basis.

Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, on at least an annual basis, goodwill is evaluated for impairment by comparing the fair value of our reporting units to their related carrying value, including goodwill (our community banking operation is our only material reporting unit). If the carrying value of a reporting unit were ever to exceed its fair value, we would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.

At our last goodwill impairment evaluation as of September 30, 2011, we determined the fair value of our community banking operation was approximately $18.50 per common share, or 8% higher, than the $17.08 stated book value of our common stock at the date of valuation. To assist us in computing the fair value of our community banking operation, we engaged a consulting firm who used various valuation techniques as part of their analysis, which resulted in the conclusion of the $18.50 value.

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We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.

Fair Value and Discount Accretion of Loans Acquired in FDIC-Assisted Transactions

We consider the determination of the initial fair value of loans acquired in FDIC-assisted transactions, the initial fair value of the related FDIC indemnification asset, and the subsequent discount accretion of the purchased loans to involve a high degree of judgment and complexity. We determine fair value accounting estimates of newly assumed assets and liabilities in accordance with relevant accounting guidance. However, the amount that we realize on these assets could differ materially from the carrying value reflected in our financial statements, based upon the timing of collections on the acquired loans in future periods. To the extent the actual values realized for the acquired loans are different from the estimates, the FDIC indemnification asset will generally be impacted in an offsetting manner due to the loss-sharing support from the FDIC.

Because of the inherent credit losses associated with the acquired loans in a failed bank acquisition, the amount that we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. We have applied the cost recovery method of accounting to all purchased impaired loans due to the uncertainty as to the timing of expected cash flows. This will result in the recognition of interest income on these impaired loans only when the cash payments received from the borrower exceed the recorded net book value of the related loans.

For nonimpaired purchased loans, we accrete the discount over the lives of the loans in a manner consistent with the guidance for accounting for loan origination fees and costs.

Current Accounting Matters

See Note 2 to the Consolidated Financial Statements above for information about accounting standards that we have recently adopted.

RESULTS OF OPERATIONS

Overview

Net loss available to common shareholders for the first quarter of 2012 amounted of $5.9 million, or ($0.35) per diluted common share, compared to net income available to common shareholders of $5.3 million, or $0.32 per diluted common share, reported in the first quarter of 2011. The net loss reported for the first quarter of 2012 was caused primarily by a higher provision for loan losses related to non-covered loans.

Also impacting comparability from 2011 to 2012 was a significant gain we recorded in 2011. In the first quarter of 2011, we realized a $10.2 million bargain purchase gain related to the acquisition of The Bank of Asheville in Asheville, North Carolina. The after-tax impact of this gain was $6.2 million, or $0.37 per diluted common share.

Note Regarding Components of Earnings

Our results of operation are significantly affected by the on-going accounting for two FDIC-assisted failed bank acquisitions. In the discussion below, the term “covered” is used to describe assets included as part of FDIC loss share agreements, which generally result in the FDIC reimbursing the Company for

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80% of losses incurred on those assets. The term “non-covered” refers to the Company’s legacy assets, which are not subject to any type of loss share arrangement.

For covered loans that deteriorate in terms of repayment expectations, we record immediate allowances through the provision for loan losses. For covered loans that experience favorable changes in credit quality compared to what was expected at the acquisition date, including loans that payoff, we record positive adjustments to interest income over the life of the respective loan – also referred to as loan discount accretion. For foreclosed properties that are sold at gains or losses or that are written down to lower values, we record the gains/losses within noninterest income.

The adjustments discussed above are recorded within the income statement line items noted without consideration of the FDIC loss share agreements. Because favorable changes in covered assets result in lower expected FDIC claims, and unfavorable changes in covered assets result in higher expected FDIC claims, the FDIC indemnification asset is adjusted to reflect those expectations. The net increase or decrease in the indemnification asset is reflected within noninterest income.

The adjustments noted above can result in volatility within individual income statement line items. Because of the FDIC loss share agreements and the associated indemnification asset, pretax income resulting from amounts recorded as provisions for loan losses on covered loans, discount accretion, and losses from covered foreclosed properties is generally only impacted by 20% due to the corresponding adjustments made to the indemnification asset.

Net Interest Income and Net Interest Margin

Net interest income for the first quarter of 2012 did not vary significantly compared to the first quarter of 2011, amounting to $32.1 million in the first quarter of 2012 compared to $32.3 million in the first quarter of 2011.

The Company’s net interest margin (tax-equivalent net interest income divided by average earning assets) for the first quarter of 2012 was 4.59% compared to 4.62% for the first quarter of 2011. The slightly lower margin was primarily due to an average earning asset yield that decreased by more than the decline in the average rate paid on liabilities. This was primarily a result of the mix of the Company’s earning assets being more concentrated in lower yielding short-term investments in 2012 compared to a larger concentration of higher yielding loans and securities in 2011.

The 4.59% net interest margin realized in the first quarter of 2012 was a four basis point increase from the 4.55% margin realized in the fourth quarter of 2011. The increase was primarily a result of higher amounts of discount accretion on loans purchased in failed bank acquisitions recognized during the 2012 period. As previously discussed, the impact of the changes in discount accretion on pretax income is only 20% of the gross amount of the change.

Provision for Loan Losses and Asset Quality

For the three months ended March 31, 2012, we recorded total provisions for loan losses of $21.6 million compared to $11.3 million for the same period of 2011.

The large increase in 2012 related to our non-covered loans, with the provision for loan losses on non-covered loans amounting to $18.6 million in the first quarter of 2012 compared to $7.6 million in the first quarter of 2011. The increase resulted from refinements to our loan loss model and internal control changes that resulted in a realignment of departmental responsibilities for determining our allowance for loan losses.  As a result of the changes, an internal review of selected nonperforming loan relationships was conducted, which applied more conservative assumptions to estimate the probable losses.  We believe that the additional reserves established may lead to a more timely resolution of the related credits.

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Our provisions for loan losses for covered loans amounted to $3.0 million and $3.8 million for the three months ended March 31, 2012 and 2011, respectively. The lower provision in 2012 was due to a decline in covered nonperforming loans resulting from the resolution of these loans through a combination of charge-offs and foreclosures. The majority of the provisions for loan losses on covered loans in 2011 and 2012 relate to loans assumed in the Company’s June 2009 acquisition of Cooperative Bank. As previously discussed, the provision for loan losses related to covered loans is offset by an 80% increase to the FDIC indemnification asset, which increases noninterest income.

Total non-covered nonperforming assets have remained fairly stable over the past five quarter ends, ranging from $116 million to $122 million, or approximately 4.0% of total non-covered assets at March 31, 2012.

Covered nonperforming assets have generally declined over that same period, amounting to $135 million at March 31, 2012 compared to $169 million at March 31, 2011.

Noninterest Income

Total noninterest income was $5.3 million in the first quarter of 2012 compared to $14.2 million for the first quarter of 2011. The decrease in 2012 compared to 2011 was primarily the result of the previously discussed $10.2 million bargain purchase gain recorded in the acquisition of The Bank of Asheville during the first quarter of 2011.

We continue to experience losses and write-downs on our foreclosed properties due to declining property values in our market area. For the first quarter of 2012, these losses amounted to $4.5 million for covered properties compared to $4.9 million in the first quarter of 2011. Losses on non-covered foreclosed properties amounted to $0.7 million for the first quarter of 2012 compared to $1.4 million in the first quarter of 2011.

As previously discussed, indemnification asset income is recorded to reflect additional amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the period. For the first quarter of 2012, indemnification asset income totaled $4.1 million compared to $5.0 million in the first quarter of 2011.

We recorded $0.5 million in gains on sales of securities during the first quarter of 2012, compared to an insignificant amount in 2011.

Noninterest Expenses

Noninterest expenses amounted to $24.4 million in the first quarter of 2012, a 2.7% decrease from the $25.0 million recorded in the same period of 2011. The decline was primarily due to lower collection expenses and lower FDIC insurance expense, as well as the absence of merger expenses in 2012.

Balance Sheet and Capital

Total assets at March 31, 2012 amounted to $3.3 billion, a 1.9% decrease from a year earlier. Total loans at March 31, 2012 amounted to $2.4 billion, a 2.0% decrease from a year earlier, and total deposits amounted to $2.8 billion at March 31, 2012, a 0.5% decrease from a year earlier.

Since the onset of the recession, we have generally experienced declines in loans and deposits. Normal loan paydowns and loan foreclosures have exceeded new loan growth, which has provided the liquidity to lessen reliance on high cost deposits. However, for the past three quarters this trend has reversed and we have experienced sequential growth in our non-covered loan portfolio, which has increased by $54 million since June 30, 2011, or 2.6%. We are actively pursuing lending opportunities in order to improve our asset yields, as well as to potentially decrease the dividend rate on our preferred stock, as discussed in the following paragraph.

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In September 2011, we issued $63.5 million in preferred stock to the U.S. Treasury as part of the Company’s participation in the Small Business Lending Fund (“SBLF”). The goal of the SBLF is to incentivize healthy banks to make loans to small businesses. Depending on the Bank’s success in making small business loans, the dividend rate on the preferred stock could range from 5% to as low as 1% for several years. For the second quarter of 2012, based on our recent small business lending trends, we expect to pay a dividend rate of 4.8%.

We remain well-capitalized by all regulatory standards, with a Total Risk-Based Capital Ratio at March 31, 2012 of 16.34% compared to the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was 6.29% at March 31, 2012, a decrease of 13 basis points from a year earlier.

Components of Earnings

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets. Net interest income for the three month period ended March 31, 2012 amounted to $32.1 million, a decrease of $0.2 million, or 0.7%, from the $32.3 million recorded in the first quarter of 2011. Net interest income on a tax-equivalent basis for the three month period ended March 31, 2012 amounted to $32.5 million, a decrease of $0.2 million, or 0.7%, from the $32.7 million recorded in the first quarter of 2011. We believe that analysis of net interest income on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest income amounts in different periods without taking into account the different mix of taxable versus non-taxable investments that may have existed during those periods.

	Three Months Ended March 31,
($ in thousands)	2012		2011
Net interest income, as reported	$	32,091		32,314
Tax-equivalent adjustment		387		385
Net interest income, tax-equivalent	$	32,478		32,699

There are two primary factors that cause changes in the amount of net interest income we record - 1) changes in our loans and deposits balances, and 2) our net interest margin (tax-equivalent net interest income divided by average interest-earning assets).

For the three months ended March 31, 2012, the slightly lower net interest income compared to the same period of 2011 was due to slightly lower balances of loans and deposits and a three basis point decrease in net interest margin.

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The following table presents net interest income analysis on a tax-equivalent basis.

	For the Three Months Ended March 31,
	2012							2011
($ in thousands)	Average Volume		Average Rate			Interest Earned or Paid		Average Volume		Average Rate			Interest Earned or Paid
Assets
Loans (1)	$	2,430,893		5.80	%	$	35,042	$	2,502,011		5.97	%	$	36,807
Taxable securities		166,327		3.04	%		1,258		185,702		3.13	%		1,432
Non-taxable securities (2)		57,596		6.15	%		880		56,810		6.32	%		885
Short-term investments, principally federal funds		192,156		0.29	%		139		127,518		0.29	%		90
Total interest-earning assets		2,846,972		5.27	%		37,319		2,872,041		5.54	%		39,214
Cash and due from banks		58,754							66,884
Premises and equipment		71,698							67,953
Other assets		324,648							339,812
Total assets	$	3,302,072						$	3,346,690
Liabilities
Interest bearing checking	$	438,413		0.19	%	$	206	$	324,707		0.28	%	$	227
Money market deposits		521,008		0.41	%		528		510,901		0.59	%		742
Savings deposits		152,868		0.30	%		115		158,733		0.67	%		261
Time deposits >$100,000		744,860		1.17	%		2,175		797,540		1.32	%		2,604
Other time deposits		574,882		0.89	%		1,269		679,398		1.30	%		2,169
Total interest-bearing deposits		2,432,031		0.71	%		4,293		2,471,279		0.99	%		6,003
Securities sold under agreements to repurchase		6,706		0.24	%		4		58,384		0.35	%		50
Borrowings		130,534		1.68	%		544		108,813		1.72	%		462
Total interest-bearing liabilities		2,569,271		0.76	%		4,841		2,638,476		1.00	%		6,515
Non-interest-bearing deposits		347,480							319,972
Other liabilities		37,127							36,291
Shareholders’ equity		348,194							351,951
Total liabilities and shareholders’ equity	$	3,302,072						$	3,346,690
Net yield on interest-earning assets and net interest income				4.59	%	$	32,478				4.62	%	$	32,699
Interest rate spread				4.51	%						4.54	%
Average prime rate				3.25	%						3.25	%

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

(2) Includes tax-equivalent adjustments of $387,000 and $385,000 in 2012 and 2011, respectively, to reflect the tax benefit that we receive related to tax-exempt securities, which carry interest rates lower than similar taxable investments due to their tax exempt status. This amount has been computed assuming a 39% tax rate and is reduced by the related nondeductible portion of interest expense.

Average loans outstanding for the first quarter of 2012 were $2.431 billion, which was 2.8% less than the average loans outstanding for the first quarter of 2011 ($2.502 billion). The mix of our loan portfolio remained substantially the same at March 31, 2012 compared to December 31, 2011, with approximately 90% of our loans being real estate loans, 7% being commercial, financial, and agricultural loans, and the remaining 3% being consumer installment loans. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Average total deposits outstanding for the first quarter of 2012 were $2.779 billion, which was 0.4% less than the average deposits outstanding for the first quarter of 2011 ($2.791 billion). Generally, we can reinvest funds from deposits at higher yields than the interest rate being paid on those deposits, and therefore increases in deposits typically result in higher amounts of net interest income.

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The slightly lower amount of average loans outstanding in 2012 is primarily due to the resolution of loans within our “covered loan” portfolio that we assumed in two failed bank acquisitions. The resolution of $98 million of these covered loans through foreclosure, charge-off, or repayment since March 31, 2011 offset $49 million in non-covered loan growth that occurred during that same period. With the overall decline in loans, we were able to lessen our reliance on higher cost sources of funding, including internet deposits and large denomination time deposits, which has resulted in lower deposit balances and a lower average cost of funds.

The Company’s net interest margin (tax-equivalent net interest income divided by average earning assets) for the first quarter of 2012 was 4.59% compared to 4.62% for the first quarter of 2011. The slightly lower margin was primarily due to an average earning asset yield that decreased by more than the decline in the average rate paid on liabilities. This was primarily a result of the mix of the Company’s earning assets being more concentrated in lower yielding short-term investments in 2012 compared to a larger concentration of higher yielding loans and securities in 2011. As can be seen in the above table, short-term investments amounted to $192 million for the first quarter of 2012, a 51% increase from the first quarter of 2011 average of $128 million, while average loan and securities balances declined during that same period. Our higher level of short-term investments was due to declining loan balances and our decision not to deploy our excess cash into higher yielding, but longer-term, securities due to the historically low interest rate environment that has been in effect.

Our net interest margin benefitted from the net accretion of purchase accounting premiums/discounts associated with the Cooperative acquisition in June 2009 and, to a lesser degree, the acquisition of Great Pee Dee Bancorp in April 2008 and the Bank of Asheville in January 2011. For the three months ended March 31, 2012 and 2011, we recorded $2,525,000 and $2,500,000, respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income. The following table presents the detail of the purchase accounting adjustments that impacted net interest income.

	For the Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011
Interest income – reduced by premium amortization on loans	$	(116	)		(105	)
Interest income – increased by accretion of loan discount		2,578			2,515
Interest expense – reduced by premium amortization of deposits		33			53
Interest expense – reduced by premium amortization of borrowings		30			37
Impact on net interest income	$	2,525			2,500

See additional information regarding net interest income in the section entitled “Interest Rate Risk.”

Our provisions for loan losses and nonperforming assets remain at what we believe to be elevated levels, primarily due to high unemployment rates and declining property values in our market area that negatively impact collateral dependent real estate loans. In addition, our provision for loan losses in the first quarter of 2012 was significantly impacted by an internal review of selected nonperforming loans that is discussed below.

Our total provision for loan losses was $21.6 million for the first quarter of 2012 compared to $11.3 million in the first quarter of 2011. The total provision for loan losses is comprised of provision for loan losses for non-covered loans and provision for loan losses for covered loans.

The provision for loan losses on non-covered loans amounted to $18.6 million in the first quarter of 2012 compared to $7.6 million in the first quarter of 2011. The increase resulted from refinements to our loan loss model and internal control changes that resulted in a realignment of departmental responsibilities for determining our allowance for loan losses.  As a result of the changes, an internal review of selected nonperforming loan relationships was conducted, which applied more conservative assumptions to estimate the probable losses.  We believe that the additional reserves established may lead to a more timely resolution of the related credits.

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For the three months ended March 31, 2012 and 2011, we recorded $3.0 million and $3.8 million in provisions for loan losses for covered loans, respectively. The lower provision for loan losses for covered loans in 2012 was due to a decline in covered nonperforming loans resulting from the resolution of these loans through a combination of charge-offs and foreclosures. Because of the FDIC loss-share agreements in place for these loans, the FDIC indemnification asset was adjusted upwards by recording noninterest income of $2.4 million and $3.0 million in the first quarter of 2012 and 2011, respectively, or 80% of the amount of the provisions.

Our non-covered nonperforming assets amounted to $117 million at March 31, 2012, compared to $122 million at December 31, 2011 and $116 million at March 31, 2011. At March 31, 2012, the ratio of non-covered nonperforming assets to total non-covered assets was 4.02%, compared to 4.30% at December 31, 2011, and 4.05% at March 31, 2011. Our outlook for nonperforming non-covered assets is consistent with the recent trend, which is that we do not expect material improvement, nor deterioration, in the near future.

Our ratio of annualized net charge-offs to average non-covered loans was 1.49% for the first quarter of 2012 compared to 1.97% in the first quarter of 2011.

Our nonperforming assets that are covered by FDIC loss share agreements have generally declined over the past twelve months, amounting to $169 million at March 31, 2011 compared to $141 million at December 31, 2011 and $135 million at March 31, 2012.

Total noninterest income was $5.3 million in the first quarter of 2012 compared to $14.2 million for the first quarter of 2011. The decrease in 2012 compared to 2011 was primarily attributable to a $10.2 million bargain purchase gain recorded in the first quarter of 2011 related to our acquisition of The Bank of Asheville.

Within noninterest income, service charges on deposits increased for the first three months of 2012 compared to the same period in 2011, amounting to $2.8 million in 2012 compared to $2.6 million in 2011. This increase is primarily due to new fees on deposit accounts that took effect April 1, 2011, such as fees for customers that elect to receive paper statements.

Other service charges, commissions and fees amounted to $2.2 million in the first quarter of 2012 compared to $1.9 million in the first quarter of 2011. The increase in 2012 is primarily attributable to increased debit card usage by our customers. We earn a small fee each time our customers make a debit card transaction.

We continue to experience losses and write-downs on our foreclosed properties due to declining property values in our market area. For the first quarter of 2012, these losses amounted to $4.5 million for covered properties compared to $4.9 million in the first quarter of 2011, while losses on non-covered foreclosed properties amounted to $0.7 million for the first quarter of 2012 compared to $1.4 million in the first quarter of 2011.

As previously discussed, indemnification asset income is recorded to reflect additional amounts expected to be received from the FDIC due to covered loan and foreclosed property losses arising during the period. For the first quarter of 2012, indemnification asset income totaled $4.1 million compared to $5.0 million for the first quarter of 2011.

During the first quarter of 2012, we recorded $0.5 million in gains on sales of approximately $9.6 million in available for sale securities. In the comparable period of 2011, we recorded an insignificant gain on sales of securities.

Noninterest expenses amounted to $24.4 million in the first quarter of 2012, a 2.7% decrease over the $25.0 million recorded in the same period of 2011.

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Personnel expense for the three months ended March 31, 2012 amounted to $14.1 million, a 9.1% increase from the $12.9 million recorded in the first quarter of 2011. Within this line item, salaries expense was $10.2 million for the first quarter of 2012 compared to $9.7 million in the first quarter of 2011. Salaries expense for the fourth quarter of 2011 was $10.4 million.

Also within the line item “personnel expense” is employee benefits expense, which was $3.9 million in the first quarter of 2012 compared to $3.2 million in the first quarter of 2011. The higher level of expense in 2012 was primarily due to higher employee health care expense as a result of higher claims activity and increased pension expense as a result of a lower actuarial discount rate used to determine the amount of required expense.

Other noninterest expenses amounted to $7.2 million for the first quarter of 2012 compared to $8.8 million in the first quarter of 2011. Two of the largest categories of expense within this line item are collection expenses and FDIC insurance expense, both of which decreased in the first quarter of 2012 compared to the first quarter of 2011. Collection expenses on non-covered assets amounted to $0.6 million for the three months ended March 31, 2012 compared to $0.8 million recorded in the first quarter of 2011. Collection expenses on covered assets (net of FDIC reimbursement) amounted to approximately $0.5 million for the first quarter of 2012 and $0.8 million for the first quarter of 2011.

FDIC insurance expense amounted to $0.7 million for the three months ended March 31, 2012 compared to $1.3 million for the comparable period in 2011. The decrease in FDIC insurance expense in 2012 was due to a change in the FDIC’s assessment methodology effective April 1, 2011 that was favorable for the Company.

In the first quarter of 2012, we recorded severance expenses of $0.4 million as an “other noninterest expense,” and in the first quarter of 2011, we recorded a fraud loss of $0.6 million in this same line item.

We recorded an income tax benefit of $3.3 million for the first quarter of 2012 due to the net loss reported for the period. The tax benefit was approximately 39% of the reported net loss. For the first quarter of 2011, the provision for income taxes was $3.7 million, an effective tax rate of 36.3%.

The Consolidated Statements of Comprehensive Income reflect other comprehensive income of $350,000 and $196,000 during the first quarters of 2012 and 2011, respectively. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains of our available for sale securities. Our available for sale securities portfolio is predominantly comprised of fixed rate bonds that generally increase in value when market yields for fixed rate bonds decrease and decline in value when market yields for fixed rate bonds increase. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.

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FINANCIAL CONDITION

Total assets at March 31, 2012 amounted to $3.34 billion, 1.9% lower than a year earlier. Total loans at March 31, 2012 amounted to $2.44 billion, a 2.0% decrease from a year earlier, and total deposits amounted to $2.83 billion, a 0.5% decrease from a year earlier.

The following table presents information regarding the nature of our growth for the twelve months ended March 31, 2012 and for the first quarter of 2012.

April 1, 2011 to March 31, 2012	Balance at beginning of period		Internal Growth			Growth from Acquisitions		Balance at end of period		Total percentage growth			Percentage growth, excluding acquisitions
	($ in thousands)
Loans – Non-covered	$	2,045,998	48,526			—		2,094,524		2.4		%	2.4		%
Loans - Covered		440,212		(98,112	)		—		342,100		-22.3	%		-22.3	%
Total loans		2,486,210		(49,586	)		—		2,436,624		-2.0	%		-2.0	%
Deposits – Noninterest bearing checking	$	332,168		39,125			—		371,293		11.8	%		11.8	%
Deposits – Interest bearing checking		349,677		119,014			—		468,691		34.0	%		34.0	%
Deposits – Money market		513,553		8,797			—		522,350		1.7	%		1.7	%
Deposits – Savings		161,869		(4,250	)		—		157,619		-2.6	%		-2.6	%
Deposits – Brokered		194,178		(36,061	)		—		158,117		-18.6	%		-18.6	%
Deposits – Internet time		51,075		(23,120	)		—		27,955		-45.3	%		-45.3	%
Deposits – Time>$100,000		593,625		(32,463	)		—		561,162		-5.5	%		-5.5	%
Deposits – Time<$100,000		648,296		(84,424	)		—		563,872		-13.0	%		-13.0	%
Total deposits	$	2,844,441		(13,382	)		—		2,831,059		-0.5	%		-0.5	%
January 1, 2012 to March 31, 2012
Loans – Non-covered	$	2,069,152		25,372			—		2,094,524		1.2	%		1.2	%
Loans - Covered		361,234		(19,134	)		—		342,100		-5.3	%		-5.3	%
Total loans	$	2,430,386		6,238			—		2,436,624		0.3	%		0.3	%
Deposits – Noninterest bearing checking	$	335,833		35,460			—		371,293		10.6	%		10.6	%
Deposits – Interest bearing checking		423,452		45,239			—		468,691		10.7	%		10.7	%
Deposits – Money market		509,801		12,549			—		522,350		2.5	%		2.5	%
Deposits – Savings		146,481		11,138			—		157,619		7.6	%		7.6	%
Deposits – Brokered		157,408		709			—		158,117		0.5	%		0.5	%
Deposits – Internet time		29,902		(1,947	)		—		27,955		-6.5	%		-6.5	%
Deposits – Time>$100,000		575,408		(14,246	)		—		561,162		-2.5	%		-2.5	%
Deposits – Time<$100,000		576,752		(12,880	)		—		563,872		-2.2	%		-2.2	%
Total deposits	$	2,755,037		76,022			—		2,831,059		2.8	%		2.8	%

As derived from the table above, for the twelve months preceding March 31, 2012, our non-covered loans increased by $49 million, or 2.4%, which was offset by declines in our covered loans of $98 million. Over that same period, total deposits decreased $13 million, or 0.5%. For the first three months of 2012, non-covered loans increased $25 million, or 1.2%, which was partially offset by declines in our covered loans of $19 million. During the first quarter of 2012, total deposits increased by $76 million, or 2.8%. We had no acquisitions during the periods presented. We have experienced growth in our non-covered loan portfolio during the periods presented. We are actively pursuing lending opportunities in order to improve our asset yields, as well as to potentially decrease the dividend rate on our SBLF preferred stock (see Note 15 to the consolidated financial statements for more information).

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For the twelve months preceding March 31, 2012, the declines in our higher cost deposits, including internet deposits and time deposits, offset the internal growth experienced in our lower cost checking accounts. However, during the first quarter of 2012, the positive internal growth in our lowest cost deposits outpaced the decline in our higher cost deposits, which resulted in a net increase in deposits. A portion of the $119 million increase in interest bearing checking accounts during the twelve months preceding March 31, 2012 was caused by the shifting of repurchase agreements (securities sold under agreements to repurchase) to interest bearing checking accounts during late 2011 and early 2012. In July 2011, the Dodd-Frank Act repealed certain sections of the Federal Reserve Act that prohibited payment of interest on commercial demand accounts. With this prohibition removed, we began to pay interest on certain types of commercial demand accounts, as we encouraged our customers with repurchase agreements to switch to commercial checking accounts, which eliminated the need to sell/pledge our investment securities. Securities sold under agreements to repurchase were $73 million at March 31, 2011, $17 million at December 31, 2011 and $0 at March 31, 2012.

The mix of our loan portfolio remains substantially the same at March 31, 2012 compared to December 31, 2011. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Note 8 to the consolidated financial statements presents additional detailed information regarding our mix of loans, including a break-out between loans covered by FDIC loss share agreements and non-covered loans.

Nonperforming Assets

Nonperforming assets include nonaccrual loans, troubled debt restructurings, loans past due 90 or more days and still accruing interest, and other real estate. As previously discussed, as a result of two FDIC-assisted transactions, we entered into loss share agreements that afford us significant protection from losses from all loans and other real estate acquired in those acquisitions.

Because of the loss protection provided by the FDIC, the financial risk of the acquired loans and foreclosed real estate is significantly different from the risk associated with assets not covered under the loss share agreements. Accordingly, we present separately nonperforming assets subject to the loss share agreements as “covered” nonperforming assets, and nonperforming assets that are not subject to the loss share agreements as “non-covered.”

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Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	March 31, 2012			December 31, 2011			March 31, 2011
Non-covered nonperforming assets
Nonaccrual loans	$	69,665			73,566			69,250
Restructured loans – accruing		10,619			11,720			19,843
Accruing loans >90 days past due		—			—			—
Total non-covered nonperforming loans		80,284			85,286			89,093
Other real estate		36,838			37,023			26,961
Total non-covered nonperforming assets	$	117,122			122,309			116,054
Covered nonperforming assets (1)
Nonaccrual loans (2)	$	42,369			41,472			56,862
Restructured loans – accruing		13,158			14,218			16,238
Accruing loans > 90 days past due		—			—			—
Total covered nonperforming loans		55,527			55,690			73,100
Other real estate		79,535			85,272			95,868
Total covered nonperforming assets	$	135,062			140,962			168,968
Total nonperforming assets	$	252,184			263,271			285,022
Asset Quality Ratios – All Assets
Net charge-offs to average loans - annualized		1.68	%		1.00	%		2.92	%
Nonperforming loans to total loans		5.57	%		5.80	%		6.52	%
Nonperforming assets to total assets		7.56	%		8.00	%		8.38	%
Allowance for loan losses to total loans		2.17	%		1.70	%		1.72	%
Allowance for loan losses to nonperforming loans		38.90	%		29.38	%		26.37	%
Asset Quality Ratios – Based on Non-covered Assets only
Net charge-offs to average non-covered loans - annualized		1.49	%		1.09	%		1.97	%
Non-covered nonperforming loans to non-covered loans		3.83	%		4.12	%		4.35	%
Non-covered nonperforming assets to total non-covered assets		4.02	%		4.30	%		4.05	%
Allowance for loan losses to non-covered loans		2.22	%		1.72	%		1.75	%
Allowance for loan losses to non-covered nonperforming loans		57.86	%		41.75	%		40.15	%

(1) Covered nonperforming assets consist of assets that are included in loss share agreements with the FDIC.

(2) At March 31, 2012, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $68.3 million.

We have reviewed the collateral for our nonperforming assets, including nonaccrual loans, and have included this review among the factors considered in the evaluation of the allowance for loan losses discussed below.

Consistent with the weak economy in our market area, we have experienced high levels of loan losses, delinquencies and nonperforming assets compared to our historical averages.

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The following is the composition, by loan type, of all of our nonaccrual loans (covered and non-covered) at each period end, as classified for regulatory purposes:

($ in thousands)	At March 31, 2012		At December 31, 2011		At March 31, 2011
Commercial, financial, and agricultural	$	2,487		3,300		2,235
Real estate – construction, land development, and other land loans		44,230		48,467		57,549
Real estate – mortgage – residential (1-4 family) first mortgages		25,784		24,133		33,663
Real estate – mortgage – home equity loans/lines of credit		6,168		7,255		6,445
Real estate – mortgage – commercial and other		30,367		28,491		23,540
Installment loans to individuals		2,998		3,392		2,680
Total nonaccrual loans	$	112,034		115,038		126,112

The following segregates our nonaccrual loans at March 31, 2012 into covered and non-covered loans, as classified for regulatory purposes:

($ in thousands)	Covered Nonaccrual Loans		Non-covered Nonaccrual Loans		Total Nonaccrual Loans
Commercial, financial, and agricultural	$	32		2,455		2,487
Real estate – construction, land development, and other land loans		19,003		25,227		44,230
Real estate – mortgage – residential (1-4 family) first mortgages		9,992		15,792		25,784
Real estate – mortgage – home equity loans/lines of credit		1,090		5,078		6,168
Real estate – mortgage – commercial and other		12,251		18,116		30,367
Installment loans to individuals		1		2,997		2,998
Total nonaccrual loans	$	42,369		69,665		112,034

The following segregates our nonaccrual loans at December 31, 2011 into covered and non-covered loans, as classified for regulatory purposes:

($ in thousands)	Covered Nonaccrual Loans		Non-covered Nonaccrual Loans		Total Nonaccrual Loans
Commercial, financial, and agricultural	$	469		2,831		3,300
Real estate – construction, land development, and other land loans		21,203		27,264		48,467
Real estate – mortgage – residential (1-4 family) first mortgages		10,134		13,999		24,133
Real estate – mortgage – home equity loans/lines of credit		1,231		6,024		7,255
Real estate – mortgage – commercial and other		8,212		20,279		28,491
Installment loans to individuals		223		3,169		3,392
Total nonaccrual loans	$	41,472		73,566		115,038

At March 31, 2012, troubled debt restructurings (covered and non-covered) amounted to $23.8 million, compared to $25.9 million at December 31, 2011, and $36.1 million at March 31, 2011. The decline from March 31, 2011 to March 31, 2012 is primarily a result of troubled debt restructurings that re-defaulted and were placed on nonaccrual status.

Other real estate includes foreclosed, repossessed, and idled properties. Non-covered other real estate has increased over the past year, amounting to $36.8 million at March 31, 2012, $37.0 million at December 31, 2011, and $27.0 million at March 31, 2011. At March 31, 2012, we also held $79.5 million in other real estate that is subject to the loss share agreements with the FDIC, which is a decline from $85.3 million at December 31, 2011 and $95.9 million at March 31, 2011. We believe that the fair values of the items of other real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented.

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The following table presents the detail of all of our other real estate at each period end (covered and non-covered):

($ in thousands)	At March 31, 2012		At December 31, 2011		At March 31, 2011
Vacant land	$	72,625		76,341		79,933
1-4 family residential properties		31,306		33,724		34,523
Commercial real estate		12,442		12,230		8,373
Other		—		—		—
Total other real estate	$	116,373		122,295		122,829

The following segregates our other real estate at March 31, 2012 into covered and non-covered:

($ in thousands)	Covered Other Real Estate		Non-covered Other Real Estate		Total Other Real Estate
Vacant land	$	55,571		17,054		72,625
1-4 family residential properties		15,993		15,313		31,306
Commercial real estate		7,971		4,471		12,442
Other		—		—		—
Total other real estate	$	79,535		36,838		116,373

The following segregates our other real estate at December 31, 2011 into covered and non-covered:

($ in thousands)	Covered Other Real Estate		Non-covered Other Real Estate		Total Other Real Estate
Vacant land	$	59,994		16,347		76,341
1-4 family residential properties		17,362		16,362		33,724
Commercial real estate		7,916		4,314		12,230
Other		—		—		—
Total other real estate	$	85,272		37,023		122,295

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The following table presents geographical information regarding our nonperforming assets at March 31, 2012.

	As of March 31, 2012
($ in thousands)	Covered		Non-covered		Total		Total Loans		Nonperforming Loans to Total Loans
Nonaccrual loans and Troubled Debt Restructurings (1)
Eastern Region (NC)	$	47,259		20,780		68,039	$	540,000		12.6	%
Triangle Region (NC)		—		23,861		23,861		772,000		3.1	%
Triad Region (NC)		—		14,555		14,555		381,000		3.8	%
Charlotte Region (NC)		—		1,012		1,012		97,000		1.0	%
Southern Piedmont Region (NC)		514		2,515		3,029		219,000		1.4	%
Western Region (NC)		7,611		—		7,611		67,000		11.4	%
South Carolina Region		143		11,213		11,356		145,000		7.8	%
Virginia Region		—		4,931		4,931		205,000		2.4	%
Other		—		1,417		1,417		11,000		12.9	%
Total nonaccrual loans and troubled debt restructurings	$	55,527		80,284		135,811	$	2,437,000		5.6	%
Other Real Estate (1)
Eastern Region (NC)	$	65,150		11,772		76,922
Triangle Region (NC)		—		8,037		8,037
Triad Region (NC)		—		8,028		8,028
Charlotte Region (NC)		—		3,878		3,878
Southern Piedmont Region (NC)		—		1,597		1,597
Western Region (NC)		14,282		—		14,282
South Carolina Region		103		3,027		3,130
Virginia Region		—		499		499
Other		—		—		—
Total other real estate		79,535		36,838		116,373

(1)     The counties comprising each region are as follows:

Eastern North Carolina Region - New Hanover, Brunswick, Duplin, Dare, Beaufort, Onslow, Carteret

Triangle North Carolina Region - Moore, Lee, Harnett, Chatham, Wake

Triad North Carolina Region - Montgomery, Randolph, Davidson, Rockingham, Guilford, Stanly

Southern Piedmont North Carolina Region - Anson, Richmond, Scotland, Robeson, Bladen, Columbus

Western North Carolina Region - Buncombe

South Carolina Region - Chesterfield, Dillon, Florence, Horry

Virginia Region - Wythe, Washington, Montgomery, Pulaski

Charlotte North Carolina Region - Iredell, Cabarrus, Rowan

Summary of Loan Loss Experience

The allowance for loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management’s opinion, become uncollectible. The recoveries realized during the period are credited to this allowance.

We have no foreign loans, few agricultural loans and do not engage in significant lease financing or highly leveraged transactions. Commercial loans are diversified among a variety of industries. The majority of our real estate loans are primarily personal and commercial loans where real estate provides additional security for the loan. Collateral for virtually all of these loans is located within our principal market area.

The current economic environment has resulted in an increase in our classified and nonperforming assets, which has led to elevated provisions for loan losses. Our total provision for loan losses was $21.6 million for the first quarter of 2012 compared to $11.3 million in the first quarter of 2011. The total provision for loan losses is

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comprised of provisions for loan losses for non-covered loans and provisions for loan losses for covered loans, as discussed in the following paragraphs.

The provision for loan losses on non-covered loans amounted to $18.6 million in the first quarter of 2012 compared to $7.6 million in the first quarter of 2011. The increase resulted from refinements to our loan loss model and internal control changes that resulted in a realignment of departmental responsibilities for determining our allowance for loan losses.  As a result of the changes, an internal review of selected nonperforming loan relationships was conducted, which applied more conservative assumptions to estimate the probable losses.  We believe that the additional reserves established may lead to a more timely resolution of the related credits.

A part of the departmental realignment involved a reassignment of the responsibility for determining our allowance for loan loss amount at period end.  Concurrent with this change, we performed a new review of the Company’s nonperforming loans and significant classified lending relationships.  As a result of this review, approximately 30 loan relationships were identified in which additional provisions for loan losses were necessary when more conservative judgments were applied to the repayment assumptions associated with the borrowers.  The total additional provisions for losses associated with these borrowers was approximately $11 million.  The majority of the additional provision was concentrated in construction and land development real estate, commercial real estate, and residential real estate loan categories.  

For the three months ended March 31, 2012 and 2011, we recorded $3.0 million and $3.8 million in provisions for loan losses for covered loans, respectively. The lower provision for loan losses for covered loans in 2012 was due to a decline in covered nonperforming loans resulting from the resolution of these loans through a combination of charge-offs and foreclosures. Because of the FDIC loss-share agreements in place for these loans, the FDIC indemnification asset was adjusted upwards by recording noninterest income of $2.4 million and $3.0 million in the first quarter of 2012 and 2011, respectively, or 80% of the amount of the provisions.

For the first three months of 2012, we recorded $10.1 million in net charge-offs, compared to $18.0 million for the comparable period of 2011. The net charge-offs in 2012 included $2.4 million of covered loans and $7.7 million of non-covered loans, whereas in 2011 net charge-offs included $7.9 million of covered loans and $10.1 million of non-covered loans. The charge-offs in 2012 continue a trend that began in 2010, with charge-offs being concentrated in the construction and land development real estate categories. These types of loans have been impacted the most by the recession and decline in new housing.

The allowance for loan losses amounted to $52.8 million at March 31, 2012, compared to $41.4 million at December 31, 2011 and $42.8 million at March 31, 2011. At March 31, 2012, December 31, 2011, and March 31, 2011, the allowance for loan losses attributable to covered loans was $6.4 million, $5.8 million, and $7.0 million, respectively. The allowance for loan losses for non-covered loans amounted to $46.5 million, $35.6 million, and $35.8 million at March 31, 2012, December 31, 2011, and March 31, 2011, respectively. The increase in the allowance for losses at March 31, 2012 compared to prior periods is primarily due to the high provision for loan losses recorded in the first quarter of 2012 that was recorded as an addition to the allowance for loan losses without a corresponding increase in charge-offs.

We believe our reserve levels are adequate to cover probable loan losses on the loans outstanding as of each reporting date. It must be emphasized, however, that the determination of the reserve using our procedures and methods rests upon various judgments and assumptions about economic conditions and other factors affecting loans. No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings. See “Critical Accounting Policies – Allowance for Loan Losses” above.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses and value of other real estate. Such agencies may require us to recognize adjustments to the allowance or the carrying value of other real estate based on their judgments about information available at the time of their examinations.

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For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, changes in the allowance for loan losses arising from charge-offs and recoveries, additions to the allowance for loan losses that have been charged to expense, and additions that were recorded related to acquisitions.

	Three Months Ended March 31,			Twelve Months Ended December 31,			Three Months Ended March 31,
($ in thousands)	2012			2011			2011
Loans outstanding at end of period	$	2,436,624			2,430,386			2,486,210
Average amount of loans outstanding	$	2,430,893			2,461,995			2,502,011
Allowance for loan losses, at beginning of year	$	41,418			49,430			49,430
Provision for loan losses		21,555			41,301			11,343
		62,973			90,731			60,773
Loans charged off:
Commercial, financial, and agricultural		(911	)		(2,358	)		(1,609	)
Real estate – construction, land development & other land loans		(3,702	)		(25,604	)		(8,264	)
Real estate – mortgage – residential (1-4 family) first mortgages		(2,158	)		(12,045	)		(5,285	)
Real estate – mortgage – home equity loans / lines of credit		(864	)		(3,195	)		(1,114	)
Real estate – mortgage – commercial and other		(2,111	)		(7,180	)		(1,736	)
Installment loans to individuals		(943	)		(1,600	)		(423	)
Total charge-offs		(10,689	)		(51,982	)		(18,431	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		18			314			13
Real estate – construction, land development & other land loans		322			919			31
Real estate – mortgage – residential (1-4 family) first mortgages		48			492			127
Real estate – mortgage – home equity loans / lines of credit		48			375			84
Real estate – mortgage – commercial and other		25			119			32
Installment loans to individuals		82			450			146
Total recoveries		543			2,669			433
Net charge-offs		(10,146	)		(49,313	)		(17,998	)
Allowance for loan losses, at end of period	$	52,827			41,418			42,775
Ratios:
Net charge-offs as a percent of average loans		1.68	%		2.00	%		2.92	%
Allowance for loan losses as a percent of loans at end of  period		2.17	%		1.70	%		1.72	%

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The following table discloses the activity in the allowance for loan losses for the three months ended March 31, 2012, segregated into covered and non-covered.

	As of March 31, 2012
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	342,100			2,094,524			2,436,624
Average amount of loans outstanding	$	351,667			2,079,226			2,430,893
Allowance for loan losses, at beginning of year	$	5,808			35,610			41,418
Provision for loan losses		2,998			18,557			21,555
		8,806			54,167			62,973
Loans charged off:
Commercial, financial, and agricultural		(29	)		(882	)		(911	)
Real estate – construction, land development & other land loans		(1,024	)		(2,678	)		(3,702	)
Real estate – mortgage – residential (1-4 family) first mortgages		(694	)		(1,464	)		(2,158	)
Real estate – mortgage – home equity loans / lines of credit		(89	)		(775	)		(864	)
Real estate – mortgage – commercial and other		(453	)		(1,658	)		(2,111	)
Installment loans to individuals		(145	)		(798	)		(943	)
Total charge-offs		(2,434	)		(8,255	)		(10,689	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			18			18
Real estate – construction, land development & other land loans		—			322			322
Real estate – mortgage – residential (1-4 family) first mortgages		—			48			48
Real estate – mortgage – home equity loans / lines of credit		—			48			48
Real estate – mortgage – commercial and other		—			25			25
Installment loans to individuals		—			82			82
Total recoveries		—			543			543
Net charge-offs		(2,434	)		(7,712	)		(10,146	)
Allowance for loan losses, at end of period	$	6,372			46,455			52,827

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The following table discloses the activity in the allowance for loan losses for the three months ended March 31, 2011, segregated into covered and non-covered.

	As of March 31, 2011
($ in thousands)	Covered			Non-covered			Total
Loans outstanding at end of period	$	440,212			2,045,998			2,486,210
Average amount of loans outstanding	$	431,949			2,070,062			2,502,011
Allowance for loan losses, at beginning of year	$	11,155			38,275			49,430
Provision for loan losses		3,773			7,570			11,343
		14,928			45,845			60,773
Loans charged off:
Commercial, financial, and agricultural		(3	)		(1,606	)		(1,609	)
Real estate – construction, land development & other land loans		(4,097	)		(4,167	)		(8,264	)
Real estate – mortgage – residential (1-4 family) first mortgages		(2,704	)		(2,581	)		(5,285	)
Real estate – mortgage – home equity loans / lines of credit		(199	)		(915	)		(1,114	)
Real estate – mortgage – commercial and other		(869	)		(867	)		(1,736	)
Installment loans to individuals		(54	)		(369	)		(423	)
Total charge-offs		(7,926	)		(10,505	)		(18,431	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		—			13			13
Real estate – construction, land development & other land loans		—			31			31
Real estate – mortgage – residential (1-4 family) first mortgages		—			127			127
Real estate – mortgage – home equity loans / lines of credit		—			84			84
Real estate – mortgage – commercial and other		—			32			32
Installment loans to individuals		—			146			146
Total recoveries		—			433			433
Net charge-offs		(7,926	)		(10,072	)		(17,998	)
Allowance for loan losses, at end of period	$	7,002			35,773			42,775

Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at March 31, 2012, there have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2011.

Liquidity, Commitments, and Contingencies

Our liquidity is determined by our ability to convert assets to cash or acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following four sources - 1) an approximately $392 million line of credit with the Federal Home Loan Bank (of which $88 million was outstanding at March 31, 2012), 2) a $50 million overnight federal funds line of credit with a correspondent bank (none of which was outstanding at March 31, 2012), and 3) an approximately $92 million line of credit through the Federal Reserve Bank of Richmond’s discount window (none of which was outstanding at March 31, 2012). In addition to the outstanding borrowings from the FHLB that reduce the available borrowing capacity of that line of credit, our borrowing capacity was further reduced by $203 million at both March 31, 2012 and December 31, 2011, as a result of our pledging letters of credit for public deposits at each of those dates. Unused and available lines of credit amounted to $243 million at March 31, 2012 compared to $227 million at December 31, 2011.

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Our overall liquidity has increased since March 31, 2011. Our loans have decreased $47 million, while our deposits have only decreased by $13 million. As a result, our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from 16.7% at March 31, 2011 to 17.2% at March 31, 2012.

We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.

The amount and timing of our contractual obligations and commercial commitments has not changed materially since December 31, 2011, detail of which is presented in Table 18 on page 80 of our 2011 Annual Report on Form 10-K.

We are not involved in any legal proceedings that, in our opinion, could have a material effect on our consolidated financial position.

Off-Balance Sheet Arrangements and Derivative Financial Instruments

Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities.

Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in derivative activities through March 31, 2012, and have no current plans to do so.

Capital Resources

We are regulated by the Board of Governors of the Federal Reserve Board (FED) and are subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. Our banking subsidiary is regulated by the Federal Deposit Insurance Corporation (FDIC) and the North Carolina Office of the Commissioner of Banks. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

We must comply with regulatory capital requirements established by the FED and FDIC. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. These capital standards require us to maintain minimum ratios of “Tier 1” capital to total risk-weighted assets and total capital to risk-weighted assets of 4.00% and 8.00%, respectively. Tier 1 capital is comprised of total shareholders’ equity calculated in accordance with generally accepted accounting principles, excluding accumulated other comprehensive income (loss), less intangible assets, and total capital is comprised of Tier 1 capital plus certain adjustments, the largest of which is our allowance for loan losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FED and FDIC regulations.

In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The FED has not advised us of any requirement specifically applicable to us.

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At March 31, 2012, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents our capital ratios and the regulatory minimums discussed above for the periods indicated.

	March 31, 2012			December 31, 2011			March 31, 2011
Risk-based capital ratios:
Tier I capital to Tier I risk adjusted assets		15.07	%		15.46	%		15.50	%
Minimum required Tier I capital		4.00	%		4.00	%		4.00	%
Total risk-based capital to Tier II risk-adjusted assets		16.34	%		16.72	%		16.76	%
Minimum required total risk-based capital		8.00	%		8.00	%		8.00	%
Leverage capital ratios:
Tier I leverage capital to adjusted most recent quarter average assets		9.97	%		10.21	%		10.04	%
Minimum required Tier I leverage capital		4.00	%		4.00	%		4.00	%

Our bank subsidiary is also subject to capital requirements similar to those discussed above. The bank subsidiary’s capital ratios do not vary materially from our capital ratios presented above. At March 31, 2012, our bank subsidiary exceeded the minimum ratios established by the FED and FDIC.

In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio was 6.29% at March 31, 2012 compared to 6.58% at December 31, 2011 and 6.42% at March 31, 2011.

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BUSINESS DEVELOPMENT MATTERS

The following is a list of business development and other miscellaneous matters affecting First Bancorp and First Bank, our bank subsidiary.

· On April 30, 2012, First Bank entered into an agreement to assume all of the deposits and acquire certain loans of the Gateway Bank & Trust Co. branch located in Wilmington, North Carolina. The acquired assets will be transferred to one of our existing branches that is located nearby. The transaction is subject to regulatory approval and is expected to occur in the third quarter of 2012.

· On March 5, 2012, the Kill Devil Hills, North Carolina branch located at 2007 S. Croatan Highway re-opened after extensive renovations.

· We expect to open our new branch in Salem, Virginia in July 2012. This branch will represent our 7^th branch in southwestern Virginia.

· We are relocating our Biscoe, North Carolina branch and expect completion of the new building in the fall of 2012.

· We expect to complete the relocation of our branch in Fort Chiswell, Virginia in October 2012.

· On October 24, 2011, the Company reported that it had reached an agreement to purchase eleven coastal branches from Waccamaw Bank, headquartered in Whiteville, North Carolina. The application for regulatory approval for this transaction has been submitted and is pending.

· On March 9, 2012, the Company announced a quarterly cash dividend of $0.08 cents per share payable on April 25, 2012 to shareholders of record on March 31, 2012. This is the same dividend rate as the Company declared in the first quarter of 2011.

SHARE REPURCHASES

We repurchased 148 shares of our common stock during the first three months of 2012 in two private transactions. At March 31, 2012, we had approximately 214,000 shares available for repurchase under existing authority from our board of directors. We may repurchase these shares in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk

INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)

Net interest income is our most significant component of earnings. Notwithstanding changes in volumes of loans and deposits, our level of net interest income is continually at risk due to the effect that changes in general market interest rate trends have on interest yields earned and paid with respect to our various categories of earning assets and interest-bearing liabilities. It is our policy to maintain portfolios of earning assets and interest-bearing liabilities with maturities and repricing opportunities that will afford protection, to the extent practical, against wide interest rate fluctuations. Our exposure to interest rate risk is analyzed on a regular basis by management using standard GAP reports, maturity reports, and an asset/liability software model that simulates future levels of interest income and expense based on current interest rates, expected future interest rates, and various intervals of “shock” interest rates. Over the years, we have been able to maintain a fairly consistent yield on average earning assets (net interest margin). Over the past five calendar years, our net interest margin has ranged from a low of 3.74% (realized in 2008) to a high of 4.72% (realized in 2011). During that five year period, the prime rate of interest has ranged from a low of 3.25% (which was the rate as of March 31, 2012) to a high of 8.25%. The consistency of the net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At March 31, 2012, approximately 80% of our interest-earning assets are subject to repricing within five years (because they are either adjustable rate assets or they are fixed rate assets that mature) and substantially all of our interest-bearing liabilities reprice within five years.

Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call), at March 31, 2012, we had approximately $636 million more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In addition to the effects of “when” various rate-sensitive products reprice, market rate changes may not result in uniform changes in rates among all products. For example, included in interest-bearing liabilities subject to interest rate changes within one year at March 31, 2012 are deposits totaling $1.1 billion comprised of checking, savings, and certain types of money market deposits with interest rates set by management. These types of deposits historically have not repriced with, or in the same proportion, as general market indicators.

Overall we believe that in the near term (twelve months), net interest income will not likely experience significant downward pressure from rising interest rates. Similarly, we would not expect a significant increase in near term net interest income from falling interest rates. Generally, when rates change, our interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while our interest-sensitive liabilities that are subject to adjustment reprice at a lag to the rate change and typically not to the full extent of the rate change. In the short-term (less than six months), this results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates. However, in the twelve-month horizon, the impact of having a higher level of interest-sensitive liabilities lessens the short-term effects of changes in interest rates.

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The Federal Reserve has made no changes to interest rates since 2008, and since that time the difference between market driven short-term interest rates and longer-term interest rates has generally widened, with short-term interest rates steadily declining and longer term interest rates not declining by as much. The higher long term interest rate environment enhanced our ability to require higher interest rates on loans. As it relates to funding, we have been able to reprice many of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of deposits as a result of declining short-term interest rates in the marketplace and an increase in liquidity that lessened our need to offer premium interest rates.

As previously discussed in the section “Net Interest Income,” our net interest income was impacted by certain purchase accounting adjustments related primarily to our acquisitions of Cooperative Bank and The Bank of Asheville. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on loans acquired from Cooperative Bank and The Bank of Asheville, which amounted to $2.6 million and $2.5 million in the first quarters of 2012 and 2011, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that were initially recorded ($280 million in total) and the fact that the accretion being recorded is dependent on both the credit quality of the acquired loans and the impact of any accelerated loan repayments, including payoffs. If the credit quality of the loans declines, some, or all, of the remaining discount will cease to be accreted into income. If the underlying loans experience accelerated paydowns or are paid off, the remaining discount will be accreted into income on an accelerated basis, which in the event of total payoff will result in the remaining discount being entirely accreted into income in the period of the payoff. Each of these factors is difficult to predict and susceptible to volatility.

Based on our most recent interest rate modeling, which assumes no changes in interest rates for 2012 (federal funds rate = 0.25%, prime = 3.25%), we project that our net interest margin for the remainder of 2012 will remain relatively consistent with the net interest margins recently realized. With interest rates having been stable for a relatively long period of time, most of our interest-sensitive assets and interest-sensitive liabilities have been repriced at today’s interest rates.

We have no market risk sensitive instruments held for trading purposes, nor do we maintain any foreign currency positions.

See additional discussion regarding net interest income, as well as discussion of the changes in the annual net interest margin in the section entitled “Net Interest Income” above.

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Item 4 – Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized and reported within the required time periods.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure.  Based on the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in allowing timely decisions regarding disclosure to be made about material information required to be included in our periodic reports with the SEC. In addition, no change in our internal control over financial reporting has occurred during, or subsequent to, the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except that we realigned departmental responsibilities for determining our allowance for loan losses, as discussed in “Results of Operations - Components of Earnings” in Item 2 above.

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Part II. Other Information

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (2)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2012 to January 31, 2012		─		─	─		214,389
February 1, 2012 to February 29, 2012 (3)		28		11.66	─		214,361
March 1, 2012 to March 31, 2012 (3)		120		10.79	─		214,241
Total		148		10.95	─		214,241

Footnotes to the Above Table

(1) All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On July 30, 2004, the Company announced that its board of directors had approved the repurchase of 375,000 shares of the Company’s common stock. The repurchase authorization does not have an expiration date. There are no plans or programs the Company has determined to terminate prior to expiration, or under which we do not intend to make further purchases.

(2) The table above does not include shares that were used by option holders to satisfy the exercise price of the call options issued by the Company to its employees and directors pursuant to the Company’s stock option plans. There were no such exercises during the three months ended March 31, 2012.

(3) The repurchases during February and March 2012 relate to shares of stock that the Company repurchased in private transactions.

There were no unregistered sales of our securities during the three months ended March 31, 2012.

Item 6 - Exhibits

The following exhibits are filed with this report or, as noted, are incorporated by reference. Management contracts, compensatory plans and arrangements are marked with an asterisk (*).

3.a Articles of Incorporation of the Company and amendments thereto were filed as Exhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference.

3.b Amended and Restated Bylaws of the Company were filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 23, 2009, and are incorporated herein by reference.

4.a Form of Common Stock Certificate was filed as Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and is incorporated herein by reference.

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4.b Form of Certificate for Series A Preferred Stock was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and is incorporated herein by reference.

4.c Warrant for Purchase of Shares of Common Stock was filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and is incorporated herein by reference.

4.d Form of Certificate for Series B Preferred Stock was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and is incorporated herein by reference.

12 Computation of Ratio of Earnings to Fixed Charges.

31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. (1)

Copies of exhibits are available upon written request to: First Bancorp, Anna G. Hollers, Executive Vice President, P.O. Box 508, Troy, NC 27371

(1) As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST BANCORP
May 10, 2012	BY:/s/  Jerry L. Ocheltree
	Jerry L. Ocheltree
	President
	(Principal Executive Officer),
	Treasurer and Director
May 10, 2012	BY:/s/ Anna G. Hollers
	Anna G. Hollers
	Executive Vice President,
	Secretary
	and Chief Operating Officer
May 10, 2012	BY:/s/ Eric P. Credle
	Eric P. Credle
	Executive Vice President
	and Chief Financial Officer

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